Common stock is selling for $30 per share and underwriting costs are estimated a

Common stock is selling for $30 per share and underwriting costs are estimated at $3 if new shares are issued. Dividends for the next year will be $ 1.50 per share (D1) and earnings and dividends have grown consistently at 9 percent per year. The yield on comparative bonds has been hovering at 11 percent. The investment banker feels that the first $20 million of bonds could be sold to yield 11 percent while additional dept might require a 2 percent premium and be sold to yield 13 percent. The corporate tax rate is 34 percent. Questions a. Based on the two sources of financing what is the initial weighted average cost of capital? (Use Kd and Ke) b. At what size capital structure will the firm run out of retained earnings? c. What will the marginal cost of capital be immediately after that point? d. At what size capital structure will there be a change in the cost of debt? e.What will the marginal cost of capital be immediately after that point? f. Based on the information about potential returns on investment in the first paragraph and information on marginal cost of capital ( in part a c and e) how large a capital investment budget should the firm use? g. Graph the answer determined in part f.