Debreu Beverages Has an Optimal Capital Structure That Is 70

question 95

Multiple Choice

Debreu Beverages has an optimal capital structure that is 70% common equity, 20% debt, and 10% preferred stock. 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 21%, what is the weighted average cost of capital?

• A) Between 7% and 8%
• B) Between 8% and 9%
• C) Between 9% and 10%
• D) Between 10% and 12%

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