Question
7. Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 25%. Olsen
7. Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% 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 = 13%. New common stock in an amount up to $7 million would have a cost of re = 15.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 10% and an additional $4 million of debt at rd = 11%. The CFO estimates that a proposed expansion would require an investment of $10.2 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
%
8. Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 9%, and its common stock currently pays a $4.00 dividend per share (D0 = $4.00). The stock's price is currently $24.25, its dividend is expected to grow at a constant rate of 4% per year, its tax rate is 25%, and its WACC is 15.30%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.
%
10.
Banyan Co.s common stock currently sells for $41.25 per share. The growth rate is a constant 8%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 20%, and the expected return on equity (ROE) is 10.0%. New stock can be sold to the public at the current price, but a flotation cost of 15% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places. %
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started