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What is the wacc for the last dollar raised to complete

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Problem 1: Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs = 13%. New common stock in an amount up to $6 million would have a cost of re = 14.5%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd = 10% and an additional $3 million of debt at rd = 13%. The CFO estimates that a proposed expansion would require an investment of $6.5 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

Reference no: EM132822329

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