Calculating the weighted average cost of capital

Suppose that Tale Inc. has the following target capital structure: 40 percent stock, 50 percent debt, and 10 percent preferred stock. Its cost of equity is estimated at 8 percent, that of debt 5 percent, and that of preferred stock 4 percent. The tax rate is 30 percent.

a. What is Tale's cost of capital?

b. Should Tale use more preferred stock financing than debt financing since it is cheaper?

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