Mullineaux Corporation has a target capital structure of 60 percent common stock
ID: 2696666 • Letter: M
Question
Mullineaux Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 35 percent.
What is Mullineaux
Mullineaux Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 35 percent.
What is Mullineaux
Explanation / Answer
A
WACC = Proportion of Each Fund * Cost of Fund
= 0.55*9% + 0.1*4% + 0.35*5(1-0.34)
= 6.505%
B
After Tax Cost of Debt = Pretax Cost of Debt * (1
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