Debreu Beverages has an optimal capital structure that is 50% common equity, 40% debt, and 10% preferred stock. Debreu's pretax cost of equity is 12%. It's pretax cost of preferred equity is 7%, and it's pretax cost of debt is also 7%. If the corporate tax rate is 35%, what is the weighed average cost of capital?
a) between 7% and 8%
b) between 8% and 9%
c) between 9% and 10%
d) between 10% and 12%
Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost of capital for Stone Corp given the following additional information: