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=?

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Business

Shayla Villa

17 June, 00:27

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=?

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Jaime Ross · Answer 1

12.06%

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