Mullineaux Corporation has a target capital structure of 62 percent common stock

Question

Mullineaux Corporation has a target capital structure of 62 percent common stock, 7 percent preferred stock, and 31 percent debt. Its cost of equity is 13.2 percent, the cost of preferred stock is 6.2 percent, and the cost of debt is 7.9 percent. The relevant tax rate is 30 percent.

Required: (a) 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).)

WACC:

(b) 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).)

Aftertax cost of debt:

Explanation / Answer

a) Weightage Cost Weighted Cost A B A * B Common stock 62% 13.20% 0.08184 Preferred Stock 7% 6.20% 0.00434 Debt 31% 7.90% 0.02449 Total WACC 0.11067 Hence Total WACC = 11.07% b) After cost of debt = WACC pre tax * ( 1 - Tax rate)    = 11.07 * ( 1 -0.30)    = 11.07 * 0.70    = 7.75%

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