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Klose Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40% debt, and its tax rate is 40%.
Klose Outfitters Inc. believes that its optimal capital structure consists of 60% common equity and 40% debt, and its tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion. The firm will have $ 2 million of new retained earnings with a cost of rs = 12%. New common stock in an amount up to $ 6 million would have a cost of re = 15%. Furthermore, Klose can raise up to $ 3 million of debt at an interest rate of rd ΒΌ 10% and an additional $ 4 million of debt at rd = 12%. The CFO estimates that a proposed expansion would require an investment of $ 5.9 million. What is the WACC for the last dollar raised to complete the expansion?
