Pilot Corporation has the following current capital structure, which is considered optimal:
Bank Loans $25,000
Bonds $35,000
Preferred Stock $65,000
Common Stock $80,000
Pilot is paying interest at a rate of 12% on its’ outstanding loans, a 10% rate of return on its’ outstanding bonds, a 12% rate of return on its’ preferred stock, and its’ common stockholders require an 8% rate of return. The firms’ average tax rate is 40%. Based on the information provided, calculate the firms’ weighted average cost of capital. In addition, explain what a firms’ weighted average cost of capital represents. Finally, how is the firms’ weighted average cost of capital utilized by management?