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Olsen Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40%...

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 $3 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 = 16%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of rd = 10% and an additional $3 million of debt at rd = 12%. The CFO estimates that a proposed expansion would require an investment of $7.2 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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jeff jeffy answered 1 year ago
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