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Problem 14-9 Calculating WACC [LO3]
Mullineaux Corporation has a target capital structure of 65 percent common stock, 5 percent
preferred stock, and 30 percent debt. Its cost of equity is 11 percent, the cost of preferred stock is
5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 38 percent.
What is Mullineaux
Mullineaux Corporation has a target capital structure of 65 percent common stock, 5 percent
preferred stock, and 30 percent debt. Its cost of equity is 11 percent, the cost of preferred stock is
5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 38 percent.
Solution
a. Using the equation to calculate the WACC, we find: WACC = .65(.11) + .05(.05) + .30(.07)(1
- .38) = 0.08702 or 8.70%
b. R D = .07(1