The McGee Corporation finds it is necessary to determine itsmarginal cost of capital. McGee’s current capital structure callsfor 30 percent debt, 30 percent preferred stock, and 40 percentcommon equity. Initially, common equity will be in the form ofretained earnings (Ke) and then new common stock (Kn). The costs ofthe various sources of financing are as follows: debt, 8.5 percent;preferred stock, 6.0 percent; retained earnings, 12.0 percent; andnew common stock, 13.2 percent.

a. What is the initial weighted average cost ofcapital? (Include debt, preferred stock, and common equity in theform of retained earnings, K_e.) (Do notround intermediate calculations. Input your answers as a percentrounded to 2 decimal places.)
  

b. If the firm has $32.0 million in retainedearnings, at what size capital structure will the firm run out ofretained earnings? (Enter your answer in millions ofdollars (e.g., $10 million should be entered as "10").)
  

c. What will the marginal cost of capital beimmediately after that point? (Equity will remain at 40 percent ofthe capital structure, but will all be in the form of new commonstock, K_n.) (Do not round intermediatecalculations. Input your answer as a percent rounded to 2 decimalplaces.)
  

d. The 8.5 percent cost of debt referred to aboveapplies only to the first $40 million of debt. After that, the costof debt will be 10.5 percent. At what size capital structure willthere be a change in the cost of debt? (Enter your answerin millions of dollars (e.g., $10 million should be entered as"10").)
  

e. What will the marginal cost of capital beimmediately after that point? (Consider the facts in both partsc and d.) (Do not round intermediatecalculations. Input your answer as a percent rounded to 2 decimalplaces.)