Problem:
Fama's Llamas has a weighted average cost of capital of 11 percent. The company's cost of equity is 16 percent, and its pretax cost of debt is 8 percent. The tax rate is 32 percent.
Required:
Question 1: What is the company's target debt-equity ratio? They have an issue of preferred stock with a $10 stated dividend that just sold for $89 per share.
Question 2: What is their cost of preferred stock?
Note: Please show guided help with steps and answer.