Problem:
Klose Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion. The firm will have $1 million of new retained earnings with a cost of rs = 13%. New common stock in an amount up to $7 million would have a cost of re = 16%. Furthermore, Klose can raise up to $3 million of debt at an interest rate of rd = 9%, and an additional $6 million of debt at rd = 10%. The CFO estimates that a proposed expansion would require an investment of $3.4 million.
Required:
Question: What is the WACC for the funds Klose will be raising?
Note: Explain all steps comprehensively.