Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs = 10%. New common stock in an amount up to $7 million would have a cost of re = 11.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 11% and an additional $3 million of debt at rd = 15%. The CFO estimates that a proposed expansion would require an investment of $10.5 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 65% common equity and 35% debt, and its tax rate is 40%. 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
