hw 14 problems 9, 10

# hw 14 problems 9, 10 - which is 0.092(1 – 0.34 = 0.061 or...

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Mullineaux Corporation has a target capital structure of 57 percent common stock, 5 percent preferred stock, and 38 percent debt. Its cost of equity is 16 percent, the cost of preferred stock is 7.1 percent, and the cost of debt is 9.2 percent. The relevant tax rate is 34 percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

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(a) Mullineaux's WACC is percent. (b) Which of the following statement is true? On an aftertax basis, debt is cheaper than the preferred stock. Explanation: (a) Using the equation to calculate the WACC, we find: WACC = 0.57(0.16) + 0.05(0.071) + 0.38(0.092)(1 – 0.34) = 0.1179 or 11.79% (b) Since interest is tax deductible and dividends are not, we must look at the aftertax cost of debt,
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Unformatted text preview: which is: 0.092(1 – 0.34) = 0.061 or 6.1% Hence, on an aftertax basis, debt is cheaper than the preferred stock. Sixx AM Manufacturing has a target debt−equity ratio of 0.51. Its cost of equity is 18 percent, and its cost of debt is 11 percent. If the tax rate is 31 percent, the company's WACC is percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16)) Explanation: Here we need to use the debt–equity ratio to calculate the WACC. Doing so, we find: WACC = 0.18(1/(1+0.51)) + 0.11(0.51/(1+0.51))(1 − 0.31) = 0.1448 or 14.48%...
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hw 14 problems 9, 10 - which is 0.092(1 – 0.34 = 0.061 or...

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