Delta Corporation has the following capital structure: Debt (K) Preferred stock (Kp) Common equity (Ke) (retained earnings) Weighted average cost of capital (Kg) Capital structure size (X) Cost (aftertax) 6.6% 11.2 11.2 million Weights 20% 10 70 Weighted Cost a. If the firm has $49 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10" 4 1.32% 1.12 7.84 10.28% b. The 6.6 percent cost of debt referred to earlier applies only to the first $23 million of debt. After that the cost of debt will go up. At what size capital structure will there be a change in the cost of debt? Note: Enter your answer in millions of dollars (e.g.. $10 million should be entered as "10"
Delta Corporation has the following capital structure: Debt (K) Preferred stock (Kp) Common equity (Ke) (retained earnings) Weighted average cost of capital (Kg) Capital structure size (X) Cost (aftertax) 6.6% 11.2 11.2 million Weights 20% 10 70 Weighted Cost a. If the firm has $49 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10" 4 1.32% 1.12 7.84 10.28% b. The 6.6 percent cost of debt referred to earlier applies only to the first $23 million of debt. After that the cost of debt will go up. At what size capital structure will there be a change in the cost of debt? Note: Enter your answer in millions of dollars (e.g.. $10 million should be entered as "10"
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Concept explainers
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Transcribed Image Text:Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10".
Capital structure size (X)
million
b. The 6.6 percent cost of debt referred to earlier applies only to the first $23 million of debt. After that the cost of debt will go up Am
what size capital structure will there be a change in the cost of debt?
Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10".
Capital structure size (2)
million
Transcribed Image Text:Delta Corporation has the following capital structure:
Debt (d)
Preferred stock (Kp)
Common equity (K) (retained earnings)
Weighted average cost of capital (Kg)
Capital structure size (X)
Cost
(aftertax)
million
6.6%
11.2
11.2
Weights
20%
10
70
Weighted
Cost
a. If the firm has $49 million in retained earnings, at what size capital structure will the firm run out of retained earnings?
Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10".
4
1.32%
1.12
7.84
10.28%
b. The 6.6 percent cost of debt referred to earlier applies only to the first $23 million of debt. After that the cost of debt will go up. At
what size capital structure will there be a change in the cost of debt?
Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10",
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