Question:Mullineaux Corporation has a target capital structure
of 70 percent common stock, 5 percent preferred stock,...
Question
Mullineaux Corporation has a target capital structure
of 70 percent common stock, 5 percent preferred stock,...
Mullineaux Corporation has a target capital structure
of 70 percent common stock, 5 percent preferred stock, and 25
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 35 percent.
What is Mullineaux’s WACC?
The company president has approached you about
Mullineaux’s capital structure. He wants to know why the company
does not use more preferred stock financing because it costs less
than debt. What would you tell the president?