Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 6.1 %...

60.1K

Verified Solution

Question

Finance

Delta Corporation has the following capital structure: Cost(aftertax) Weights Weighted Cost Debt (Kd) 6.1 % 30 % 1.83 %Preferred stock (Kp) 7.6 20 1.52 Common equity (Ke) (retainedearnings) 13.1 50 6.55 Weighted average cost of capital (Ka) 9.90 %a. If the firm has $23 million in retained earnings, at what sizecapital structure will the firm run out of retained earnings?(Enter your answer in millions of dollars (e.g., $10 million shouldbe entered as "10").) b. The 6.1 percent cost of debt referred toearlier applies only to the first $6 million of debt. After thatthe cost of debt will go up. At what size capital structure willthere be a change in the cost of debt? (Enter your answer inmillions of dollars (e.g., $10 million should be entered as"10").)

Answer & Explanation Solved by verified expert

4.3 Ratings (755 Votes)

SEE THE See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Delta Corporation has the following capital structure: Cost(aftertax) Weights Weighted Cost Debt (Kd) 6.1 % 30 % 1.83 %Preferred stock (Kp) 7.6 20 1.52 Common equity (Ke) (retainedearnings) 13.1 50 6.55 Weighted average cost of capital (Ka) 9.90 %a. If the firm has $23 million in retained earnings, at what sizecapital structure will the firm run out of retained earnings?(Enter your answer in millions of dollars (e.g., $10 million shouldbe entered as "10").) b. The 6.1 percent cost of debt referred toearlier applies only to the first $6 million of debt. After thatthe cost of debt will go up. At what size capital structure willthere be a change in the cost of debt? (Enter your answer inmillions of dollars (e.g., $10 million should be entered as"10").)