10.6

Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $4 million of retained earnings with a cost of r_s = 10%. New common stock in an amount up to $9 million would have a cost of r_e = 12.0%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of r_d = 9% and an additional $5 million of debt at r_d = 13%. The CFO estimates that a proposed expansion would require an investment of $7.6 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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Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at r_d = 8%, and its common stock currently pays a $3.00 dividend per share (D₀ = $3.00). The stock's price is currently $27.75, its dividend is expected to grow at a constant rate of 8% per year, its tax rate is 25%, and its WACC is 15.40%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.

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