Business, 01.07.2020 15:01 mrsrobinson1014
Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $4 million of retained earnings with a cost of rs=11%r s=11%. New common stock in an amount up to $8 million would have a cost of re=12.5%re=12.5%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd=9%r d=9% and an additional $5 million of debt at rd=13%r d=13%. 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?
Answers: 1
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Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and...
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