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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
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 $1 million of retained earnings with a cost of rs = 12%. New common stock in an amount up to $8 million would have a cost of re = 13.5%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd= 11% and an additional $6 million of debt at rd = 13%. The CFO estimates that a proposed expansion would require an investment of $11.6 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
Olsen Outitters Inc. believes that its optimal capital structure consists of 7ow common equity and 30% debt, and its tak rate is 25 ow. Gisen must rast additional capital to fund its upcoming expansion. The firm wil have 51 million of retained earnings wath a cost of fu a 12 . Fiew common atock in an amourt . up to 15 million would have a cost of rn=13.5.h. Furthermore, Oisen can raise up to 14 mition of debt at an intereit rate of tor =11 Wh and an additional $5 million of debt at fo = 13\%. The cro entimates that a proposed empansion would reoulre an inveument of s11.6 milion. What is the WMcc for the last doitar raised to complete the eapansion? llound your answer to two decimal places Step by Step Solution
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