Casual Wear (CW) is a small clothing distributor located in Calgary. The owner, Fred, is studying the possibility of opening a new outlet in Winnipeg. Fred would like to estimate an expected rate of return for this project. The risk free rate is 7% and the market return is expected to be 12%. Fred has calculated that the beta of the Calgary store is 1.91 .

Freds banker has suggested a loan to supplement Freds equity in buying the new outlet. The banker has reminded Fred that he can deduct interest payments for tax purposes. Freds marginal tax rate is 42%. He used 70% debt in the Calgary store, but now he would like to use 40% debt in the Winnipeg store.

Required: Calculate Freds required return for the Winnipeg Store.