Mullineaux Corporation has a target capital structure of 64 percent common stock, 9 percent preferred stock, and 27 percent debt. Its cost of equity is 12.9 percent, the cost of preferred stock is 5.9 percent, and the cost of debt is 7.6 percent. The relevant tax rate is 40 percent. What is Mullineaux�s WACC?

= (Weightage of debt × cost of debt) + (Weightage of preferred stock) × (cost of preferred stock) + (Weightage of common stock) × (cost of common stock)

= 27% × 7.6% × (1 - 0.40) + 9% × 5.9% + 64% × 12.9%

= 2.052% × (1 - 0.40) + 0.531% + 8.256%

= 10.02%

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abiolataiwo2015 abiolataiwo2015 · Answer 2 · 2022-04-08T12:41:01+02:00

Assuming the cost of preferred stock is 5.9 percent, and the cost of debt is 7.6 percent. Mullineaux WACC is 10.02%.

Weighted average cost of capital

Usingn this formula

WACC= (Weighted of debt × cost of debt) + (Weighted of preferred stock) × (Cost of preferred stock) + (Weighted of common stock) × (cost of common stock)

Let plug in the formula

WACC= 27% × 7.6% × (1 - .40) + 9% × 5.9% + 64% × 12.9%

WACC= 2.052% × 0.6 + 0.531% + 8.256%

WACC=10.018%

WACC= 10.02% (Approximately)

Inconclusion Mullineaux WACC is 10.02%.

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