Mullineaux Corporation has a target capital structure of 60 percent common stock

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 13 percent, the cost of preferred stock is 6 percent, and the cost of debt is 7.7 percent. The relevant tax rate is 35 percent.

What is Mullineaux’s WACC? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What is Mullineaux’s WACC? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

WACC = Wd×Rd×(1-t)+We×Ke+Wp×Rp W is weights of respective portfolios R is return on respective portfolios Cost of equity 13.00% After tax cost of debt 5.01% Cost of preferred stock 6.00% Common stock weight                                     0.60 Debt weight                                     0.35 Preferred stock weight                                     0.05 WACC 9.85%

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