colstate.view.usg.edu MyCSU Quizzes - Managerial Facebo Enter yo 878527 ance X..

Question

colstate.view.usg.edu MyCSU Quizzes - Managerial Facebo Enter yo 878527 ance X.. LILEOLocker 11/10/2017 T ng He Logged in as landers-ashleigh TATE Managerial Finance XLS Group 88 Fall Semester 2017 Co RSITY Rubrics Self Assessments Discussions Assignments Quizzes V Grades 1 a Groups Classlis Quiz 13- Cost of Capital- Quiz leigh Landers: Attempt 1 of 70 percent common stock, 10 percent preferred stock, and 20 percent Mullineaux Corporation has a target capital structure debt. Its cost of equity is 13 percent, the cost of preferred stock is 3.5 percent, and the cost of debt is 7 percent. The relevant tax rate is 35 percent. Mullineaux's WACC is O 10.36% 12.41% 11.28% 10.82%. Save Question 4 (10 points) Debt Given the following Informatipn for Evenflow Power Co., the WACc is 2,500 8 percent coupon bonds outstanding, 31,000 par value, 18 years to maturity, seling for 103 percent of par, the for $105 per share. Market: 65 Preferred stock: 7,500 shares of 5.5 percent preferred stock outstanding, currently selling percent market risk premium and 5 percent rise tree rate. Margnal ta, Rate: 34 815% 11.14%

Explanation / Answer

WACC = % of equity in capital * cost of capital + % of preferred stock in capital * cost of preferred stock + % of debt * cost of debt * (1 – tax rate)

Let’s put all the values from the question

WACC = .7* .13 + .1*0.035 + .2*.07*(1-0.35)

              = 0.091 + 0.0035 + 0.014*0.65

              = 0.0945 + 0.0091

              = 0.1036 or 10.36%

Correct answer is A.

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