Preferred stock financing

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Reference no: EM1355883

ABC Corporation plans to control the cost of its capital and decides that the weighted average cost of capital, WACC, should be around 12%. ABC also has a target capital structure of 50% common stock.
Given that:
ABC's cost of equity is 16.6%;
its cost of preferred stock is 8%;
its cost of debt is 10%; and
its tax rate is 30%

Based on the information above, PLANT's cost of preferred stock is the lowest. Do you agree that PLANT should use more preferred stock financing? Please explain.

Reference no: EM1355883

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