eBook

Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 25%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs= 10%. New common stock in an amount up to $10 million would have a cost of re= 12.0%. Furthermore, Olsen can raise up to $2 million of debt at an interest rate of rd= 9% and an additional $5 million of debt at rd= 13%. The CFO estimates that a proposed expansion would require an investment of $4.0 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

%