Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure has a

20

%

weight in equity,

15

%

in preferred stock, and

65

%

in debt. The cost of equity capital is

15

%,

the cost of preferred stock is

8

%,

and the pretax cost of debt is

7

%.

What is the weighted average cost of capital for Ford if its marginal tax rate is

25

%?

A.

8.37

%

B.

8.75

%

C.

7.61

%

D.

7.23

%