Marginal cost of capital (LO5) Delta Corporation has the following capital struc
ID: 2366626 • Letter: M
Question
Marginal cost of capital (LO5) Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt 6.1% 25% 1.53% Preferred stock (Kp) 7.6 10 .76 Common equity (Ke) (retained earnings) 15.1 65 9.82 Weighted average cost of capital (Ka) 12.11% a. If the firm has $26 million in retained earnings, at what size capital structure will the firm run out of retained earnings? b. The 7.1 percent cost of debt referred to above applies only to the first $13 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?Explanation / Answer
(a)
D1 = $4.60, P0 = $60, g = 6%, F = $3.00. (Round your intermediate and final answers to 2 decimal places. Omit the "%" sign in your response.)
Ke
%
Kn
%
(b)
D1 = $0.25, P0 = $20, g = 9%, F = $1.50. (Round your intermediate and final answers to 2 decimal places. Omit the "%" sign in your response.)
Ke
%
Kn
%
(c)
E1 (earnings at the end of period one) = $6, payout ratio equals 30 percent, P0 = $24, g = 4.5%, F = $1.60. (Round your intermediate and final answers to 2 decimal places. Omit the "%" sign in your response.)
Ke
%
Kn
%
(d)
D0 (dividend at the beginning of the first period) = $3, growth rate for dividends and earnings (g) = 8%, P0 = $50, F = $3. (Round your intermediate and final answers to 2 decimal places. Omit the "%" sign in your response.)
Ke
%
Kn
%
Problem 11-29 Marginal cost of capital [LO5]
The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee
(a)
D1 = $4.60, P0 = $60, g = 6%, F = $3.00. (Round your intermediate and final answers to 2 decimal places. Omit the "%" sign in your response.)