P14-9 Calculating WACC

MULLINEAU CORPORATION HAS A TARGET CAPITAL STRUCTURE OF 60 % COMMON STOCK

5 percent preferred stock

35 percent debt

Its cost of equity is 12 percent

The cost of preferred stock is 5 percent

And the pre-tax cost of debt is 7 percent

The relevant tax rate is 35 percent

a.-what is mullineaux WACC

B-The company president approached about capital structure wants to know why the company doesnt use more preferred stock financing because it cost less than debt. What would you tell him?