Problem:
A company has a target capital structure of 60% common stock, 5% preferred stock and 35% debt. Cost of equity is 12%, cost of preferred stock is 5%, and pretax cost of debt is 7%. The relevant tax rate is 35%.
Required:
Question: What is the WACC? Why doesn't the company use more preferred stock financing instead of debt?
Note: Please show guided help with steps and answer.