DirectJet has a target capital structure of 55 percent common stock, 15 percent preferred stock, and 40 percent debt. Its cost of equity is 10 percent, the cost of preferred stock is 5 percent, and the cost of debt is 7 percent. The relevant tax rate is 35 percent.

a. b. What is the WACC of DirectJet? Since the preferred stock costs less than debt financing, why does DirectJet not use more preferred stock financing than debt financing?