Mullineaux Corporation has a target capital structure of 61 percent common stock

Question

Mullineaux Corporation has a target capital structure of 61 percent common stock, 6 percent preferred stock, and 33 percent debt. Its cost of equity is 12.6 percent, the cost of preferred stock is 5.6 percent, and the cost of debt is 7.3 percent. The relevant tax rate is 34 percent.

What is Mullineaux’s WACC? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

What is the aftertax cost of debt? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

Mullineaux Corporation has a target capital structure of 61 percent common stock, 6 percent preferred stock, and 33 percent debt. Its cost of equity is 12.6 percent, the cost of preferred stock is 5.6 percent, and the cost of debt is 7.3 percent. The relevant tax rate is 34 percent.

Explanation / Answer

b. After tax cost of debt = 7.3 * (1 - 0.34)

After tax cost of debt = 4.82

a. WACC = 0.61 * 12.6 + 0.06 * 5.6 + 0.33 * 7.3 * (1 - 0.34)

WACC = 7.686 + 0.336 + 1.458

WACC = 9.48

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