Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its ta
Posted: Thu Apr 28, 2022 1:38 pm
Olsen Outfitters Inc. believes that its optimal capital
structure consists of 70% common equity and 30% debt, and its tax
rate is 25%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $1 million of retained
earnings with a cost of rs = 12%. New common stock
in an amount up to $9 million would have a cost of
re = 13.5%. Furthermore, Olsen can raise up to $3
million of debt at an interest rate of rd = 9% and
an additional $3 million of debt at rd = 11%. The
CFO estimates that a proposed expansion would require an investment
of $6.8 million. What is the WACC for the last dollar raised to
complete the expansion? Round your answer to two decimal places
structure consists of 70% common equity and 30% debt, and its tax
rate is 25%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $1 million of retained
earnings with a cost of rs = 12%. New common stock
in an amount up to $9 million would have a cost of
re = 13.5%. Furthermore, Olsen can raise up to $3
million of debt at an interest rate of rd = 9% and
an additional $3 million of debt at rd = 11%. The
CFO estimates that a proposed expansion would require an investment
of $6.8 million. What is the WACC for the last dollar raised to
complete the expansion? Round your answer to two decimal places