Kihei, Inc. has determined that its optimal capital structure consists of 60% equity and 40% debt. Kihei must raise additional capital to fund its upcoming expansion and its tax rate is 25%. The firm has $0.6 million in retained earnings that has a cost of 10%. Its investment bankers have informed the company that it can issue an additional $4 million of new common equity at a cost of 12%. Furthermore, the firm can raise up to $1.0 million of debt at 7% and an additional $3 million at 9%. The firm has estimated that the proposed expansion will require an investment of $5 million. What is the average after-tax cost of capital for the entire $5 million that Kihei will be raising? a. 10.48 percent b. 11.23 percent c. 8.91 percent d. 9.36 percent e. 10.87 percent Palacios Incorporated estimates that its retained earnings break point (BPRE) is $45 million, and its WACC is 14.8 percent if common equity comes from retained earnings. However, if the company issues new stock to raise new common equity, it estimates that its WACC will rise to 15.8 percent. The company is considering the following investment projects: Project Size IRR A $18 million 16.20% B 6 million 15.10 C 5 million 15.50 D 15 million 15.70 E 10 million 15.90 What is the firm's optimal capital budget? a. $45 million b. $43 million c. $46 million d. $49 million e. $48 million