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Olsen Outfitters Inc. believes that its optimal capitalstructure consists of 70% common equity and 30% debt, and its taxrate is 40%. Olsen must raise additional capital to fund itsupcoming expansion. The firm will have $2 million of retainedearnings with a cost of rs = 12%. New common stock in an amount upto $10 million would have a cost of re = 14%. Furthermore, Olsencan 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 estimatesthat a proposed expansion would require an investment of $7.9million. What is the WACC for the last dollar raised to completethe expansion?Please show all work.
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