Olsen Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40% debt, and its ta
Posted: Tue Nov 16, 2021 8:25 am
Olsen Outfitters Inc. believes that its optimal capital
structure consists of 60% common equity and 40% debt, and its tax
rate is 25%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $4 million of retained
earnings with a cost of rs = 13%. New common stock
in an amount up to $9 million would have a cost of
re = 16.0%. Furthermore, Olsen can raise up to $4
million of debt at an interest rate of rd = 11% and
an additional $4 million of debt at rd = 12%. The
CFO estimates that a proposed expansion would require an investment
of $7.0 million. What is the WACC for the last dollar raised to
complete the expansion? Round your answer to two decimal
places.
structure consists of 60% common equity and 40% debt, and its tax
rate is 25%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $4 million of retained
earnings with a cost of rs = 13%. New common stock
in an amount up to $9 million would have a cost of
re = 16.0%. Furthermore, Olsen can raise up to $4
million of debt at an interest rate of rd = 11% and
an additional $4 million of debt at rd = 12%. The
CFO estimates that a proposed expansion would require an investment
of $7.0 million. What is the WACC for the last dollar raised to
complete the expansion? Round your answer to two decimal
places.