Problem:

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 35%,

Required:

Question 1: 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%