Question

Debreu Beverages has an optimal capital structure that is 50% common equity,40% debt, 10% preferred stock. Debreu's pretax cost of equity is 12%, pretax cost of preferred equity is 7%, pretax cost of debt is also 7%. If the corporate tax rate is 35%. What is the weighted average cost of capital?

a) between 7%-8%
b) between 8%-9%
c) between 9%-10%
d) between 10%-12%