can someone show me the steps they used to obtain the answers so that I can bett

Question

can someone show me the steps they used to obtain the answers so that I can better understand the questions. Please and thanks in advance!

Mullineaux Corporation has a target capital structure of 64 percent common stock, 9 percent preferred stock, and 27 percent debt. Its cost of equity is 13.9 percent, the cost of preferred stock is 6.9 percent, and the cost of debt is 8.6 percent. The relevant tax rate is 40 percent. Required: le) What is Mulineaux's WACC? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g, 32.16).) percentage rounded to 2 decimal places (e.g., 32.16).) WACC b) 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).) Aftertax cost of debt

Explanation / Answer

Cost of Debt = 8.60% Post tax Cost of Debt = Cost of Debt * (1 - tax rate) = 8.6% * (1-0.4) = 5.16% Post Tax Cost of Debt (Kd) = 5.16% Cost of Preference Stock (Kp) = 6.9% Cost of Equity (Ke) = 13.9% WACC = Kd*Wd + Kp*Wp + Ke*We where, Wd, Wp and We are weights of debt, preference and equity capital or target capital structure Wd = 27% Wp = 9% We = 64% WACC = 0.27 * 5.16% + 0.09 * 6.9% + 0.64*13.9% = 1.3932% + 0.621% + 8.896% = 10.91%

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