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

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) (retained earnings) 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 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").) b. The 6.1 percent cost of debt referred to earlier applies only to the first $6 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? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").)

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 11 months ago

Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 9.5...

Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 9.5 % 30 % 2.85 % Preferred stock (Kp) 9.2 15 1.38 Common equity (Ke) (retained earnings) 16.2 55 8.91 Weighted average cost of capital (Ka) 13.14 % a. If the firm has $22 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...

Problem Set 8 Delta Corporation has the following capital structure: Cost (after tax) Weights Weighted Cost...

Problem Set 8 Delta Corporation has the following capital structure: Cost (after tax) Weights Weighted Cost Debt 9.1% 60% Preferred stock 10.6% 5% Common equity (retained earnings) 11.1% 35% Weighted Average Cost of Capital Calculate the weighted average cost of capital (WACC) and use it for the cost of capital interest rate for the rest of this problem. In other words, the WACC becomes the discount rate for the net present value calculations. Assume Delta has three different (mutually exclusive)...

Evans Technology has the following capital structure. Debt 40 % Common equity 60 The aftertax cost...

Evans Technology has the following capital structure. Debt 40 % Common equity 60 The aftertax cost of debt is 8.00 percent, and the cost of common equity (in the form of retained earnings) is 15.00 percent. a. What is the firm’s weighted average cost of capital? (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a...

Evans Technology has the following capital structure. Debt 25 % Common equity 75 The aftertax cost...

Evans Technology has the following capital structure. Debt 25 % Common equity 75 The aftertax cost of debt is 7.00 percent, and the cost of common equity (in the form of retained earnings) is 14.00 percent. a. What is the firm’s weighted average cost of capital? (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to...

(Weighted Average Cost of Capital) AnimalKing has a capital structure with 30% debt and 70% common...

(Weighted Average Cost of Capital) AnimalKing has a capital structure with 30% debt and 70% common stock. A debt issue of $1,000 face value with 12% coupon bonds, maturing in 15 years paying semiannual interest, will sell for $1,122.35. The cost of equity for the company is based on the CAPM and the following information: beta of 1.1, risk free treasury rate of 3% and market rate of 9%. What is AnimalKing’s cost of capital given a 20% tax rate?

Calculate the weighted average cost of capital for the following firm: it has $600000 in debt,...

Calculate the weighted average cost of capital for the following firm: it has $600000 in debt, $400000 in common stock and $200000 in preferred stock. It has a 4% cost of debt, 14% cost of common stock, 12% cost of preferred stock and a 34% tax rate.

(Weighted average cost of capital) The capital structure for the Carion Corporation is provided here:The company...

(Weighted average cost of capital) The capital structure for the Carion Corporation is provided here:The company plans to maintain its debt structure in the future. If the firm has an after-tax cost of debt of 5.3 percent, a cost of preferred stock of 13.5 percent, and a cost of common stock of 18.6 percent, what is the firm's weighted average cost of capital? CAPITAL STRUCTURE ($000) Bonds $1,095 Preferred stock 279 Common stock 3,633 $5,007

The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the...

The Cost of Capital: Weighted Average Cost of Capital The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings...

Roston Corporation has a debt-equity ratio of 3. The company’s weighted average cost of capital (WACC)...

Roston Corporation has a debt-equity ratio of 3. The company’s weighted average cost of capital (WACC) is 11%. Its before-tax cost of debt is 13% and tax rate is 25%. The company uses Capital Asset Pricing Model (CAPM) to calculate its cost of equity. The risk-free rate of return is 5% and the market risk premium is 7%. Find out the beta of the company.

The firm's weighted average cost of capital is 13% and it has $2550000 of debt at...

The firm's weighted average cost of capital is 13% and it has $2550000 of debt at market value and $510000 of preferred stock in terms of market value. The estimated free cash flow over next 5 years are in the table. Beyond 2024 to infinity, the firm expects its free cash flow to grow by 6% annually. 2020 - $250000, 2021 - $310000, 2022 - $380000, 2023 - $430000, 2024 - $470000 a. Estimate the value of the entire company...

Question