1. Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock

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1. Palencia Paints Corporation has a target capital structure of
45% debt and 55% common equity, with no preferred stock. Its
before-tax cost of debt is 12%, and its marginal tax rate is 25%.
The current stock price is P0 = $31.00. The last dividend was D0 =
$2.00, and it is expected to grow at an 8% constant rate. What is
its cost of common equity and its WACC? Do not round intermediate
calculations. Round your answers to two decimal places.
rs= %
WACC= %
2. Olsen Outfitters Inc. believes that its optimal capital
structure consists of 40% common equity and 60% debt, and its tax
rate is 25%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $1 million of retained
earnings with a cost of rs = 10%. New common stock
in an amount up to $6 million would have a cost of
re = 11.0%. Furthermore, Olsen can raise up to $4
million of debt at an interest rate of rd = 9% and
an additional $3 million of debt at rd = 13%. The
CFO estimates that a proposed expansion would require an investment
of $4.6 million. What is the WACC for the last dollar raised to
complete the expansion? Round your answer to two decimal
places.