Mullineaux Corporation has a target capital structure of 63 percent common stock
ID: 2719865 • Letter: M
Question
Mullineaux Corporation has a target capital structure of 63 percent common stock, 8 percent preferred stock, and 29 percent debt. Its cost of equity is 13.8 percent, the cost of preferred stock is 6.8 percent, and the cost of debt is 8.5 percent. The relevant tax rate is 38 percent.
What is Mullineaux’s 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 63 percent common stock, 8 percent preferred stock, and 29 percent debt. Its cost of equity is 13.8 percent, the cost of preferred stock is 6.8 percent, and the cost of debt is 8.5 percent. The relevant tax rate is 38 percent.
Explanation / Answer
Particulars
Cost
Proportion
Cost
Common stock
13.8%
63%
8.694%
Preferred Stock
6.8%
8%
0.544%
Debt
8.5% (1-0.38)= 5.27%
29%
1.53%
Total
10.766%
2. After tax cost of debt = 8.5(1-0.38)% = 5.27%
Particulars
Cost
Proportion
Cost
Common stock
13.8%
63%
8.694%
Preferred Stock
6.8%
8%
0.544%
Debt
8.5% (1-0.38)= 5.27%
29%
1.53%
Total
10.766%
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