What is the wacc for the last dollar

Reference no: EM132055570

Problem: WACC 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 $1 million of retained earnings with a cost of rs = 15%. New common stock in an amount up to $7 million would have a cost of re = 18%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 11%, and an additional $3 million of debt at rd = 14%. The CFO estimates that a proposed expansion would require an investment of $11.1 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

Reference no: EM132055570

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