Answer: 10.9%

The correct answer is **B (10.9%)**. **Explanation:** The weighted average cost of capital (WACC) is calculated using the formula: \[ WACC = W_d \times r_d \times (1 - t) + W_p \times r_p + W_e \times r_e \] Where: - \( W_d \) = Weight of debt = €60 million / (€60 + €20 + €120) million = 0.30 - \( r_d \) = Before-tax cost of debt = 6% - \( t \) = Marginal tax rate = 40% - \( W_p \) = Weight of preferred stock = €20 million / (€60 + €20 + €120) million = 0.10 - \( r_p \) = Cost of preferred stock = 8% - \( W_e \) = Weight of equity = €120 million / (€60 + €20 + €120) million = 0.60 - \( r_e \) = Cost of equity = 15% Substituting the values: \[ WACC = (0.30 \times 6\% \times (1 - 0.40)) + (0.10 \times 8\%) + (0.60 \times 15\%) \] \[ WACC = (0.30 \times 6\% \times 0.60) + 0.8\% + 9\% \] \[ WACC = 1.08\% + 0.8\% + 9\% = 10.88\% \] This rounds to **10.9%**, making **B** the correct choice. **Why not A or C?** - **A (9.7%)** is incorrect because it averages the costs without weighting them by market value. - **C (11.6%)** is incorrect because it uses the before-tax cost of debt without adjusting for the tax shield.

Author: LeetQuiz Editorial Team