Question

Mullineaux Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its costs of equity is 15 percent, and the cost of debt is 8 Percent. The relevant tax rate is 35 percent. What is Mullineaux's WACC?Common stock weight = 70%Debt weight = 30%Cost of Equity = 15%Cost of Debt = 8%Tax Rate = 35%WACC= ?

Answer 1

12.06%

Step-by-step explanation:

The formula to compute WACC is shown below:

= Weightage of debt × cost of debt × ( 1- tax rate) + (Weightage of common stock) × (cost of common stock)

= (0.30 × 8%) × ( 1 - 35%) + (0.70 × 15%)

= 1.56% + 10.5%

= 12.06%

Simply we multiply the cost of each capital structure with its weightage so that the correct weighted average cost of capital can come