Problem:
A firm has determined its cost of each source of capital and optional capital structure which is composed of the following sources and target market value propositions:
Sources of Capital Target Market After-tax cost
Propositions
Long-term debt 40% 6%
Preferred Stock 10 11
Common stock equity 50 15
The weighted average cost of capital is:
A. 15%
B. 10.7%
C. 11%
D. 6%