Calculate the WACC for the last dollar raised as follows:
The firm’s capital structure contains 65% common equity and 35% of debt.
Tax rate is 25%
Proportion |
Cost of capital |
Prop × Cost of capital |
|
Equity |
65% |
14.5% |
9.425% |
Debt |
35% |
8.25% (WN) |
2.8875% |
WACC |
12.31% |
Therefore, the WACC for the last dollar raised is 12.31%.
Working Note:
Therefore, the after-tax cost of debt is 8.25%
Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35%...
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 $3 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 - 14.5%. Furthermore, Olsen can raise up to $4 million of debt at an interest...
eBook 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 $1 million of retained earnings with a cost of rs 13 %. New common stock in an amount up to $10 million would have a cost of re 14.5 % . Furthermore, Olsen can raise up.to $3 million of debt...
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 = 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 $4 million of debt at an interest...
Olsen Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40% 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 = 14%. New common stock in an amount up to $10 million would have a cost of re = 16%. Furthermore, Olsen can raise up to $4 million of debt at an interest...
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 $1 million of retained earnings with a cost of rs = 15%. New common stock in an amount up to $7 million would have a cost of re = 18%. Furthermore, Olsen can raise up to $4 million of debt at an interest...
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 $3 million of retained earnings with a cost of rs = 15%. New common stock in an amount up to $7 million would have a cost of re = 18%. Furthermore, Olsen can raise up to $4 million of debt at an interest...
WACC 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 $5 million of retained earnings with a cost of r's = 15%. New common stock in an amount up to $7 million would have a cost of re = 19%. Furthermore, Olsen can raise up to $3 million of debt at an...
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 = 11%. New common stock in an amount up to $10 million would have a cost of re-13.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of...
WACC 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 $5 million of retained earnings with a cost of r's = 15%. New common stock in an amount up to $7 million would have a cost of re = 19%. Furthermore, Olsen can raise up to $3 million of debt at an...
Klose Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion. The firm will have $5 million of retained earnings with a cost of rs = 14%. New common stock in an amount up to $9 million would have a cost of re = 17%. Furthermore, Klose can raise up to $3 million of debt at an interest...