Mullineaux Corporation has a target capital structure of 60 percent common stock
ID: 2792421 • Letter: M
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 10 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 30 percent. a. 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 % b. 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.) Aftertax cost of debt %
Explanation / Answer
After tax cost of debt=7(1-0.3)=4.9%
WACC=Respective costs*respective weights
=(0.6*10)+(0.05*5)+(0.35*4.9)=7.97%(Approx)
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