Solving for a firm's WACC

A firm's weighted average cost of capital $($WACC$)$ is used as the discount rate to evaluate various capital budgeting projects. However, remember the WACC is an appropriate discount rate only for a project of average risk.

Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address.

The case of Fuzzy Button Clothing Company

Fuzzy Button Clothing Company has a target capital structure of $58\%$ debt, $6\%$ preferred stock, and $36\%$ common equity. It has a before$-$tax cost of debt of $11\mathrm{.}1\%,$ and its cost of preferred stock is $12\mathrm{.}2\%.$

If Fuzzy Button can raise all of its equity capital from retained earnings, its cost of common equity will be $14\mathrm{.}7\%.$ However, if it is necessary to raise new common equity, it will carry a cost of $16\mathrm{.}8\%.$

If its current tax rate is $40\%,$ how much higher will Fuzzy Button's weighted average cost of capital $($WACC$)$ be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? $($Note: Round your answer to two decimal places.$)$

$0\mathrm{.}68\%$

$0\mathrm{.}75\%$

$0\mathrm{.}83\%$

$0\mathrm{.}90\%$