Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs- 11%. lew common stock in an amount up to $6 million would have a cost of re- 13.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of ra - 9% and an additional $4 million of debt at ra- 11%. The CFO estimates that a proposed expansion would require n investment of $8.2 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. 9.71
Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs- 11%. lew common stock in an amount up to $6 million would have a cost of re- 13.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of ra - 9% and an additional $4 million of debt at ra- 11%. The CFO estimates that a proposed expansion would require n investment of $8.2 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. 9.71
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs = 11%.
New common stock in an amount up to $6 million would have a cost of re = 13.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 9% and an additional $4 million of debt at rd = 11%. The CFO estimates that a proposed expansion would require
an investment of $8.2 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
9.71
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4a838c8e-9209-4b5d-b96a-c966f484a578%2Fb727da4f-62f1-403a-b5f5-af07e49ae2b3%2Fgxotzlb_processed.png&w=3840&q=75)
Transcribed Image Text:Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs = 11%.
New common stock in an amount up to $6 million would have a cost of re = 13.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 9% and an additional $4 million of debt at rd = 11%. The CFO estimates that a proposed expansion would require
an investment of $8.2 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
9.71
%
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