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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 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 $10 million would have a cost of re = 14%. Furthermore, Olsen can raise up to $2 million of debt at an interest rate of rd = 10% and an additional $6 million of debt at rd = 11%. The CFO estimates that a proposed expansion would require an investment of $5.4 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
The current price of a non-dividend-paying stock is $30. Over the next six months it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. I. What long position in the stock is necessary to hedge a short call option when the s..
Which of the following is not a characteristic of common stock:
Would the lender be likely to make the loan to the borrow? What would be the borrower's before-tax yield on equity?
The Gap is considering buying cash register software from Microsoft so that it can more effectively deal with its retail sales. The software package costs $750,000 and will be depreciated down to zero using the straight-line method over its five-year..
What will be the change in the bond’s price in dollars? What will be the change in the percentage terms?
Without considering the salvage value, which car should you buy if you want to have the minimum annual average cost, assuming an 8% cost?
Cranberry Wood Products Inc. spends an average of $9.30 in labor and $12.60 in materials on every unit it sells. Sales commissions and shipping amount to another $3.10. All other costs are fixed and add up to $141,000 per month. What is Cranberry's c..
Using spot and forward exchange rates: The spot exchange rate for the Canadian dollar (CAD) is 1.14 CAD and the six-month forward rate is 1.17 CAD. Calculate whether a U.S. dollar (USD) or a Canadian dollar is worth more.
A stock had returns of 18 percent, 39 percent, and -18 percent over the past three years. What was the standard deviation of the stock's returns?
What is the intrinsic value and the time value for each option? What is your expected minimum price with each option?
Bonds can sometimes be regarded as volatile based on several factors for examples interest rates being the most obvious.
There are some excellent free personal finance apps available: Mint.com, GoodBudget Mvelopes-BillGuard, PocketExpense,
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