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WACC Klose Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40% debt and its tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion. The firm will have $3 million of retained earning, with a cost of r s = 12%. New common stock in an amount up to $6 million would have a cost of r e = 15%, furthermore. Klose can raise up to $3 million of debt at an interest rate of r d = 10% and an additional $4 million of debt at r d = 12% The CFO estimates that a proposed expansion would require an investment of $5.9 million. What is the WACC for the last dollar raised to complete the expansion?

BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 10, Problem 10P
Textbook Problem

WACC Klose Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40% debt and its tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion. The firm will have $3 million of retained earning, with a cost of rs = 12%. New common stock in an amount up to $6 million would have a cost of re = 15%, furthermore. Klose can raise up to $3 million of debt at an interest rate of rd = 10% and an additional $4 million of debt at rd = 12% The CFO estimates that a proposed expansion would require an investment of $5.9 million. What is the WACC for the last dollar raised to complete the expansion?

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