This case focuses on determination of the cost of capital for a firm. The student determines the cost of individual sources of financing, including long-term debt, preferred stock, and common stock. The cost of debt is adjusted for Eco Plastics 40% tax bracket. The company is considering a new financial structure, with the replacement of preferred stock financing with debt financing. Additional use of debt increases the common stockholders required rate of return. The student is asked to compare the two weighted average costs of capital and identify the better financial structure for Eco Plastics Company.