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Question: 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 = 14%. New common stock in an amount up to $9 million would have a cost of re = 18%.

Furthermore, Olsen can raise up to $2 million of debt at an interest rate of rd = 9%, and an additional $5 million of debt at rd = 10%. The CFO estimates that a proposed expansion would require an investment of $4.2 million.

What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

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Category:- Basic Finance
Reference No.:- M92861675

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