Debreu Beverages Has an Optimal Capital Structure That Is 70

question 12

Multiple Choice

Debreu Beverages has an optimal capital structure that is 70% common equity, 10% preferred stock, and 20% debt. Debreu's pretax cost of equity is 9%. Its pretax cost of preferred equity is 7%, and its pretax cost of debt is also 5%. If the corporate tax rate is 35%, what is the weighted average cost of capital?

• A) 8.74%
• B) 8%
• C) 5.2%
• D) 7.65%;