Question

"Mullineaux Corporation has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent debt. Its cost of equity is 11.25 percent, the cost of preferred stock is 5.5 percent, and the cost of debt is 6.1 percent. The relevant tax rate is 35 percent.What is Mullineaux's WACC?"

Answer 1

9.24%

Step-by-step explanation:

WACC = weight of equity x cost of equity + weight of debt x cost of debt x (1 - tax rate)

equity = 0.75 x 11.25 = 8.44

preffered equity = 0.05 x 5.5 = 0.0028

debt = 0.2 x 6.1 x 0.65 = 0.79

ADD them together = 9.24%