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10. Problem 10.10 (WACC) eBook Olsen Outfitters Inc....

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Finance

10. Problem 10.10 (WACC)

eBook

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 = 12%. New common stock in an amount up to $8 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 = 10% and an additional $4 million of debt at rd = 13%. The CFO estimates that a proposed expansion would require an investment of $4.4 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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