The weighted average cost of capital weights out the three sources of capital: common shares, debt, and preferred shares.
WACC formula= % Equity x Cost of Equity + % Debt x Cost of Debt x (1- Tax Rate) + % Preferred Shares x Cost of Preferred Shares
% Equity = Equity / (Equity + Debt + Preferred Equity)
% Debt = Debt / (Equity + Debt + Preferred Equity)
% Preferred Equity = Preferred Equity / (Equity + Debt + Preferred Equity)