Give true answer the financial accounting The Nolan Corporation finds that it is necessary to determine itsmarginal cost of capital. Nolan's current capital structure calls for 35percent debt, 20 percent preferred stock, and 45 percent commonequity. Initially, common equity will be in the form of retained earnings(Ke) and then new common stock (Kn). The costs of the varioussources of financing are as follows: debt, 9.5 percent; preferred stock, 7percent; retained earnings, 15 percent; and new common stock, 12.2percent.The 9.5 percent cost of debt referred to above applies only to the first$21 million of debt. After that the cost of debt will be 11.5 percent. Atwhat size capital structure will there be a change in the cost of debt?

Step 1: Define Capital StructureA firm's capital structure refers to the size of each capital…

Answered: The Nolan Corporation finds that it is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 5P

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The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan's current capital structure calls for 35 percent debt, 25 percent preferred stock, and 40 percent common equity. Initially, common equity will be in the form of retained earnings (K) and then new common stock (K). The costs of the various sources of financing are as follows: debt (after-tax), 6.2 percent; preferred stock, 8 percent; retained earnings, 11 percent; and new common stock, 12.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke) (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost % Debt Preferred stock Common equity Weighted average cost of capital 0.00 % b. If the firm has $28 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of…
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current capital structure calls for 35 percent debt, 25 percent preferred stock, and 40 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt (after-tax), 8.6 percent; preferred stock, 8 percent; retained earnings, 14 percent; and new common stock, 15.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.) (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) b. If the firm has $16 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").) c. What will the marginal cost of…
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