4- Mullineaux Corporation has a target capital structure of 70 percent common st

Question

4-

Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 13 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 35 percent.

What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent 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 percent rounded to 2 decimal places, e.g., 32.16.)

Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 13 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 35 percent.

Explanation / Answer

After tax cost of debt=6(1-0.35)=3.9%

WACC=Respective costs*Respective weights

=(0.7*13)+(0.1*4)+(0,2*3.9)=10.28%

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