Mullineaux Corporation has a target capital structure of 50 percent common stock
ID: 2749727 • Letter: M
Question
Mullineaux Corporation has a target capital structure of 50 percent common stock, 5 percent preferred stock, and 45 percent debt. Its cost of equity is 9 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 34 percent.
What is Mullineaux’s WACC? (Round your answer to 2 decimal places. (e.g., 32.16))
What is the aftertax cost of debt? (Round your answer to 2 decimal places. (e.g., 32.16))
Mullineaux Corporation has a target capital structure of 50 percent common stock, 5 percent preferred stock, and 45 percent debt. Its cost of equity is 9 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 34 percent.
Explanation / Answer
WACC = 50*9/100+5*4/100+45*6(1-.34)/100 WACC = 4.5+.2+1.782 WACC = 6.482% Cost of Capital is 6.482% After Tax cost of debt 4(1-.34) 3.96% After Tax cost of debt is 3.96%
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