Mullineaux Corporation has a target capital structure of 64 percent common stock
ID: 2642949 • Letter: M
Question
Mullineaux Corporation has a target capital structure of 64 percent common stock, 9 percent preferred stock, and 27 percent debt. Its cost of equity is 12.9 percent, the cost of preferred stock is 5.9 percent, and the cost of debt is 7.6 percent. The relevant tax rate is 40 percent.
What is Mullineauxs WACC? (Do not round intermediate calculations. Enter your answer as a percentage 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 percentage rounded to 2 decimal places (e.g., 32.16).)
Mullineaux Corporation has a target capital structure of 64 percent common stock, 9 percent preferred stock, and 27 percent debt. Its cost of equity is 12.9 percent, the cost of preferred stock is 5.9 percent, and the cost of debt is 7.6 percent. The relevant tax rate is 40 percent.
Explanation / Answer
Mullinaux Corporation a WACC Calculation Type of Stock % Weight Cost Weighted Cost Of Capital a b =a*b Equity 64% 12.90% 8.26% Preference share 9% 5.90% 0.53% Debt 27% 4.56% 1.23% Post tax cost of debt used, refer sol b. Total 100% 10.02% So WACC of corporate structure = 10.02% b Cost of debt 7.60% Tax Rate 40% Post Tax cost of debt =7.6%*(100%-40%) = 4.56% So post Tax cost of debt =4.56%
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