A firm's estimated costs of debt, preferred stock, and common stock are 12%,17%, and 20%, respectively. Assuming equal funding from each source and a 40% tax rate, the weightedaverage cost of capital is closest to:
B is correct:
WACC = wd rd (1-t) + wp rp + we r e = [0.12 × (1 -0.40) + 0.17 + 0.20] ÷3 = 14.73%.