Question

Mullineaux Corporation has a target capital structure of 41 percent common stock, 4 percent preferred stock, and 55 percent debt. Its cost of equity is 17 percent, the cost of preferred stock is 6.5 percent, and the pre-tax cost of debt is 8.3 percent. What is the firm's WACC given a tax rate of 33 percent?

Answer 1

the weighted average cost of capital is 10.29%

Step-by-step explanation:

The computation of the weighted average cost of capital is shown below;

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

= 0.55 × 8.3% × (1 - 0.33) + (0.04 × 6.5%) + (0.41 × 17%)

= 3.058% + 0.26% + 6.97%

= 10.29%

Hence, the weighted average cost of capital is 10.29%

We simply applied the above formula