Weighted Average Cost of Capital
Not what you're looking for?
Mullineaux Corporation has a target capital structure of 60% common stock, 5% preferred stock, and 35% debt. Its cost of equity is 14%, the cost of preferred stock is 6%, and the cost of debt is 8%. The relevant tax rate is 35%.
A. What is Mullineaux's WACC?
B. The company president has approached you about Mullineaux's capital structure. He wants to know why the company doesn't use more preferred stock financing because it costs less than debt. What would you tell the president?
Purchase this Solution
Solution Summary
The solution calculates Weighted Average Cost of Capital for Mullineaux Corporation.
Solution Preview
Weighted average Cost of Capital = E/V * Cost of Equity + D/V * cost of debt * (1-tax rate)
Answer A - Mullineaux's WACC
WACC = 60%*14 + 5%*6 + 35%*8*(1-0.35)
WACC = 8.4% + 0.3% + 1.82%
WACC = 10.52%
Answer B
Lets analyse to following situations..
Situation 1 - ...
Purchase this Solution
Free BrainMass Quizzes
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.