Compute cost of each component Equity use CAPM = 0.05+0.9 (0.12-0.05) =11.3% Preferred Ks=D/r Dividends paid=5.5% x95=5.225 Ks=5.225/95=5.5% Debt- after tax =7.5(1-t) 7.5 x 0.65=4.9% WACC= = Wd*Kd(1-t) + Wp*Kp + We*Ke =4.9 X 0.771+ 5.5 X 0.004+ 11.3 X0.918=14.2 WACC=14.2%