What is the wacc for the last dollar

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Reference no: EM132022945

Question: 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 $1 million of retained earnings with a cost of r_s = 12%. New common stock In an amount up to $6 million would have a cost of r-e = 14%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of r_d = 9%, and an additional $3 million of debt at r_d = 11%. The CFO estimates that a proposed expansion would require an investment of $8.0 million. What is the WACC for the last dollar raised to complete the expansion?

Reference no: EM132022945

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