The effect of tax rate on WACC K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 25% debt, 10% preferred stock, and 65% common stock. The cost of financing with retained earnings is 12%, the cost of preferred stock financing is 11%, and the before-tax cost of debt financing is 7%. Calculate the weighted average cost of capital (WACC) given a tax rate of 40%