A firm has determined its cost of each source of capital and optimal capital structure which is composed of the following sources and target market value proportions. Compute the weighted average cost of capital. Target market

Source of capital Target market proportions After tax cost

Long term debt 40% 6%

Preferred stock 10% 11%

Common stock equity 50% 16%

a. 6.5 percent

b. 10.7 percent

c. 11.5 percent

d. 15.1 percent