Mullineaux Corporation has a target capital structure of 65 percent common stock

Question

Mullineaux Corporation has a target capital structure of 65 percent common stock, 5 percent preferred stock, and 30 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 5 percent. The relevant tax rate is 40 percent. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Ans: WACC =Kd*Wd*(1-t)+kp*wp+ke*we Kd= Cost of Debt Wd= % debt T=tax rate Kp= cost of preferred stock Wp= % preferred stock Ke= Cost of common equity We= % common equity WACC= 30%*5%(1-40%)+5%*4%+65%*12% 8.90% Ans2: After Tax cost of debt 30%*5(1-40%) 0.9

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