Mullineaux Corporation has a target capital structure of 75 percent common stock

Question

Mullineaux Corporation has a target capital structure of 75 percent common stock, 15 percent preferred stock, and 10 percent debt. Its cost of equity is 8 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 35 percent.

What is Mullineaux

Mullineaux Corporation has a target capital structure of 75 percent common stock, 15 percent preferred stock, and 10 percent debt. Its cost of equity is 8 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 35 percent.

Explanation / Answer

Hi,

WACC = weight of debt*cost of debt*(1-tax rate) + weight of common stock*cost of common stock + weight of preffered stock*cost of preffered stock

=10%*7%*(1-35%)+75%*8%+15%*5%

=7.21%

Hence, the WACC is 7.21%

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