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 $2 million of retained earnings with a cost of rs = 11%. New common stock in an amount up to $9 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 = 13%. The CFO estimates that a proposed expansion would require an investment of $7.4 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. %
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 $2 million of
%
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
