Mullineaux Corporation has a target capital structure of 50 percent common stock
ID: 2624211 • Letter: M
Question
Mullineaux Corporation has a target capital structure of 50 percent common stock, 5 percent preferred stock, and 45 percent debt. Its cost of equity is 9 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 34 percent.
What is Mullineaux
Mullineaux Corporation has a target capital structure of 50 percent common stock, 5 percent preferred stock, and 45 percent debt. Its cost of equity is 9 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 34 percent.
Explanation / Answer
WACC = (proprtion of equity * cost of equity ) + (proprtion of preferred stock * cost of preferred stock) + (proprtion of debt * cost of debt) (1-tax rate)
WACC = (0.5 * 0.09) +( 0.05*0.04) + (0.45*0.06) (1-0.34)
WACC = 0.045 + 0.002 + 0.01782
WACC = 0.065
WACC = 6.5 %
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