Our calculations show that Ellis Industries' capital structure consists of 40 percent debt, 10 percent preferred stock, and 50 percent common equity. If Ellis Industries thinks that this mixture is optimal and wants to maintain it, then it will finance new capital budgeting projects with a mixture of 40 percent debt, 10 percent preferred stock, and 50 percent common equity. This mixture might not be used for each and every project. But in the long run, the firm is likely to seek this capital structure if it is believed to be optimal. The final step in estimating a firm's overall cost of capital is to find the weighted average of the costs of each individual financing source. The weighted average cost of capital (k or WACC) is the mean of all component costs of capital, weighted according to the percentage of each component in the firm's optimal capital structure. We find the WACC by multiplying the individual source's cost of capital times its percentage of the firm's capital structure, then adding these results. For Ellis Industries, the weighted average of the financing sources follows: (.40 AT k) + (.10 xk) + (.50 k) = (.40 x .06) + (.10 x .125) + (.50 x .155) = .024 + .0125 + .0775 = .114, or 11.4%