Assume a tax-paying firm is currently financed with 50% debt and 50% equity. The after-tax cost of debt is 6% and the cost of equity is 12%. If the firm issues some 8% preferred stock at par, then the firm's WACC will:

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Current WACC = 0.50(.06) + 0.50(0.12) = 0.09, or 9%; Including some preferred stock at a cost of 8%, will lower the firm's WACC.

Assume a Tax-Paying Firm Is Currently Financed with 50% Debt