Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt,
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Question:
Olsen Outfitters Inc. believes that its optimal capital structure consists of 65% common equity and 35% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $1 million of retained earnings with a cost of rs= 13%. New common stock in an amount up to $9 million would have a cost of re= 15.5%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of rd= 10% and an additional $6 million of debt at rd= 11%. The CFO estimates that a proposed expansion would require an investment of $6.2 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.
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