Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Olsen must raise additional capital to fund itsupcoming expansion. The firm will have $5 million of retained earnings with a cost of rs = 10%. New common stock in an amount up to $7 million would have a cost of re 12.5%.Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 9% and an additional $5 million of debt at rd = 11%. The CFO estimates that a proposed expansion wouldrequire an investment of $11.2 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.%

WACC is the weighted average cost of equity and after-tax cost of debt. WACC is used as cost of…

Answered: Olsen Outfitters Inc. believes that its…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 11P

See similar textbooks

Similar questions

Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?
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 = 10%. New common stock in an amount up to $10 million would have a cost of re = 11.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 11% and an additional $3 million of debt at rd = 14%. The CFO estimates that a proposed expansion would require an investment of $8.8 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs = 12%. New common stock in an amount up to $6 million would have a cost of re = 15.0%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of rd = 10% and an additional $5 million of debt at rd = 12%. The CFO estimates that a proposed expansion would require an investment of $5.7 million. What is the WACC for the last dollar raised to complete the expansion?
Olsen Outfitters Inc. believes that its optimal capital structure consists of 50% common equity and 50% 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 = 13%. New common stock in an amount up to $9 million would have a cost of re = 15.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of r = 10% and an additional $4 million of debt at ra = 14%. The CFO estimates that a proposed expansion would require an Investment of $3.6 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. %
Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $4 million of retained earnings with a cost of rs = 10%. New common stock in an amount up to $9 million would have a cost of re = 13.0%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of rd = 11% and an additional $6 million of debt at rd = 15%. The CFO estimates that a proposed expansion would require an investment of $7.4 million. What is the WACC for the last dollar raised તો
Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 40%. Olsen must raise additional capital to fund it upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs = 11%. New common stock in an amount up to $10,000 would have a cost of re = 12.5%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 9% and an additional $3 million of debt at rd = 11%. The CFO estimates that a proposed expansion would require an investment of $6.8 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
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 costof rs 5 11%. New common stock in an amount up to $8 million would have a cost of re 5 12.5%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd 5 9% and an additional $5 million of debt at rd 5 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?
Klose Outfitters Inc. believes that its optimal capital structure consists of 60% common equity 40% debt, and it tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retianed earnings with 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 debt at rd = 12%. The CFO estimates that a proposed expansion would require an investment of $5.9 million. What is the WACC for that last dollar raised to complete the expansion?
Halfdome believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 25%. Halfdome must raise additional capital to fund its upcoming expansion. The firm will have $4 million of retained earnings with a cost of . New common stock in an amount up to $8 million would have a cost of . Furthermore, Halfdome can raise up to $4 million of debt at an interest rate of and an additional $5 million of debt at . The CFO estimates that a proposed expansion would require an investment of $8.2 million. What is the weighted average cost of capital (WACC) for the last dollar raised to complete the expansion? (Assume that cost of debt is 9% and cost of equity is 12.5%). 12.69% 8.45% 10.32% 9.91% None of the above
Ramos Berhad has the following capital structure which it considers optimal: Debt-30%, PS-18%, CS-52%. The Firm paid a dividend of RM2/share last year and its stock currently sells at RM80/share. Tax rate is 35% and investors expect earnings and dividends to grow at a constant rate of 12% in the future. New CS have a flotation cost of 10%. New PS would be sold at RM100/share with a dividend of RM9. Flotation cost is RM6/share. For Debt, it is a 9% irredeemable debt with a current value of RM1,100. Annual interest payment has just been made. What is the weighted average after-tax costs of capital of the company?
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 10% as long as it finances at its target capital structure, which calls for 40% debt and 60% common equity. Its last dividend (Do) was $2.60, its expected constant growth rate is 4%, and its common stock sells for $30. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 11%, and Project B's return is 10%. These two projects are equally risky and about as risky as the firm's existing assets. a. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the WACC? Do not round intermediate calculations. Round your answer to two decimal places. -Select- % c. Which projects should Empire accept?
The Black Bird Company plans an expansion. The expansion is to be financed by selling $21 million in new debt and $57 million in new common stock. The before-tax required rate of return on debt is 9.77% percent and the required rate of return on equity is 13.11% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital?

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

SEE MORE TEXTBOOKS