What is wacc for last dollar raised to complete expansion

Assignment Help Financial Management

Reference no: EM132040549

WACC

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 $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 = 15%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 9% and an additional $4 million of debt at rd = 10%. The CFO estimates that a proposed expansion would require an investment of $7.9 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

Reference no: EM132040549

Questions Cloud

High valuation multiples versus those with low multiples : Think about companies that have high valuation multiples versus those with low multiples.

Determine the amount of net income : Determine the amount of net income that International Paper would have reported in 2011 if it had used the FIFO method (assume a 30 percent tax rate)

Conviction about the stock price future movements : A straddle would be a simple options strategy to exploit your conviction about the stock price’s future movements.

How do you view conflict within a business environment : How do relationships and culture within an organization influence its attainment towards its overall goals?

What is wacc for last dollar raised to complete expansion : What is the WACC for the last dollar raised to complete the expansion?

What is the estimated purchase price of the home : How much money do they need to save each month to reach their goal? What is the estimated purchase price of the home in 5 years?

Compute the postretirement benefit expense : Kreter Co. provides the following information about its postretirement benefit plan for the year 2014. Compute the postretirement benefit expense for 2014

How you might develop a reward system : Discuss employee motivation as it relates to culture, and consider how you might develop a reward system that recognizes diversity and is equitable.

Importance of balance of power in international relations : What is the importance of balance of power in international relations?

User Account

All Pages