Debreu Beverages has an optimal capital structure that is 50% common equity,40% debt, 10% preferred stock. Debreu's pretax cost of equity is 12%, pretax cost of preferred equity is 7%, pretax cost of debt is also 7%. If the corporate tax rate is 35%. What is the weighted average cost of capital?

a) between 7%-8%
b) between 8%-9%
c) between 9%-10%
d) between 10%-12%

To calculate the weighted average cost of capital (WACC), we need to determine the cost of each component of the capital structure, and then weight them based on their respective proportions.

First, let's calculate the cost of equity. The pretax cost of equity is given as 12%. However, since the cost of equity is tax-deductible, we need to adjust it for the corporate tax rate. The after-tax cost of equity can be calculated as follows:
After-tax cost of equity = Pretax cost of equity * (1 - Tax rate)
After-tax cost of equity = 12% * (1 - 35%)
After-tax cost of equity = 0.12 * (1 - 0.35)
After-tax cost of equity = 0.12 * 0.65
After-tax cost of equity = 0.078 or 7.8%

Next, let's calculate the cost of preferred stock. The pretax cost of preferred equity is given as 7%. Since preferred stock dividends are not tax-deductible, there is no need for adjustment.

Then, let's calculate the cost of debt. The pretax cost of debt is given as 7%. Similar to equity, we need to adjust it for the corporate tax rate. The after-tax cost of debt can be calculated as follows:
After-tax cost of debt = Pretax cost of debt * (1 - Tax rate)
After-tax cost of debt = 7% * (1 - 35%)
After-tax cost of debt = 0.07 * (1 - 0.35)
After-tax cost of debt = 0.07 * 0.65
After-tax cost of debt = 0.0455 or 4.55%

Now, let's calculate the weighted average cost of capital (WACC). We multiply each component's cost by its respective weight, and then sum them up:
WACC = (Weight of equity * Cost of equity) + (Weight of preferred equity * Cost of preferred equity) + (Weight of debt * Cost of debt)

Given that the capital structure consists of 50% common equity, 40% debt, and 10% preferred stock, the weights can be calculated as follows:
Weight of equity = 50% = 0.5
Weight of debt = 40% = 0.4
Weight of preferred equity = 10% = 0.1

Substituting the values into the formula, we have:
WACC = (0.5 * 7.8%) + (0.1 * 7%) + (0.4 * 4.55%)
WACC = 0.039 + 0.007 + 0.0182
WACC = 0.0642 or 6.42%

Therefore, the weighted average cost of capital (WACC) for Debreu Beverages is approximately 6.42%.

Based on the provided options, the correct answer is:
c) between 9%-10%