Mullineaux Corporation has a target capital structure of 63 percent common stock
ID: 2755268 • Letter: M
Question
Mullineaux Corporation has a target capital structure of 63 percent common stock, 8 percent preferred stock, and 29 percent debt. Its cost of equity is 13.3 percent, the cost of preferred stock is 6.3 percent, and the cost of debt is 8 percent. The relevant tax rate is 38 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).)
Mullineaux Corporation has a target capital structure of 63 percent common stock, 8 percent preferred stock, and 29 percent debt. Its cost of equity is 13.3 percent, the cost of preferred stock is 6.3 percent, and the cost of debt is 8 percent. The relevant tax rate is 38 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).)
Mullineaux Corporation has a target capital structure of 63 percent common stock, 8 percent preferred stock, and 29 percent debt. Its cost of equity is 13.3 percent, the cost of preferred stock is 6.3 percent, and the cost of debt is 8 percent. The relevant tax rate is 38 percent.
Explanation / Answer
Answer:(a) WACC=We*Ke+Wp*Kp+Wd*Kd(1-tax rate)
=0.63*0.133+0.08*0.063*0.29*[(0.08(1-0.38))]
=0.08379+0.00504+0.014384
=10.32%
Answer:(b) After tax cost of debt=8%(1-0.38)
=4.96%
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