Mullineaux Corporation has a target capital structure of 70 percent common stock

Question

Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 40 percent.

What is Mullineaux

Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 6 percent, and the pretax cost of debt is 8 percent. The relevant tax rate is 40 percent.

Explanation / Answer

GIVEN:-

WEIGHT OF COMMON STOCK[We] = 0.70

WEIGHT OF PREFERED STOCK [Wp] = 0.10

WEIGHT OF DEBT[Wd] = 0.20

COST OF EQUITY [Ke] = 12%

COST OF PREFEERD STOCK [Kp] = 6%

AFTER TAX COST OF DEBT [Kd] = 8*(1-0.40) = 4.8%

WACC = We*Ke + Wp*Kp + Wd*Kd

= 0.7*12 + 0.1*6 + 0.2*4.8

= 9.96%

a.

What is Mullineaux

a.

What is Mullineaux

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