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...


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
= 11%. New common stock in an amount up to $6 million would have a cost of re
= 13.5%. Furthermore, Olsen can raise up to $2 million of debt at an interest rate of rd
= 9% and an additional $4 million of debt at rd
= 10%. The CFO estimates that a proposed expansion would require an investment of $6.3 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.



Jun 10, 2022
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