Mullineaux Corporation has a target capital structure of 55 percent common stock
ID: 2779485 • Letter: M
Question
Mullineaux Corporation has a target capital structure of 55 percent common stock, 15 percent preferred stock, and 30 percent debt. Its cost of equity is 9 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 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.)
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.)
Mullineaux Corporation has a target capital structure of 55 percent common stock, 15 percent preferred stock, and 30 percent debt. Its cost of equity is 9 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 40 percent.
Explanation / Answer
Ans
Componet of capital Weight Cost Weighted Cost Common Stock 0.55 9.0% 4.95% Preferred stock 0.15 4.0% 0.60% Debt 0.3 3.6% 1.08% A WACC 6.63% After Tax Cost of Debt Pre tax cost of Debt 6.0% Less Tax 40.0% B Post Tax Cost of debt 3.6%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.