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Answer :- (a)  Capital Structure Size (X)  = $60 Million, (b)  Capital Structure Size (Z)  = $65 Million. Formula and Procedure:- Question (a): At what size capital structure will the firm run out of retained earnings ? Given data, Firm has $39 million in retained earnings, Weights in the capital structure are as Debt = 20%, Preferred stock = 15%, Common equity or Retained earnings = 65%. At what size capital structure will the firm run out of retained earnings  Capital Structure Size (X) =  Retained Earnings ÷ Weight (%) of Retained Earnings in the Capital Structure = $39 million ÷ 65% = $60 million. Question (b): At what size capital structure will there be a change in the cost of debt ? Given data, 10.1% cost of debt referred to earlier applies only to the first $13 million of debt. After that cost of debt will go up. Weights in the capital structure are as Debt = 20%, Preferred stock = 15%, Common equity or Retained earnings = 65%. At what size capital structure will there be a change in the cost of debt  Capital Structure Size (Z) =  Amount of lower cost debt ÷ Weight (%) of Debt in the Capital Structure = $13 million ÷ 20% = $65 million.   ...