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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 12P

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