Problem:
Mullineaux Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 10 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 7 percent. The relevant tax rate is 30 percent.
Required:
Question 1: What is Mullineaux's WACC?
Question 2: What is the aftertax cost of debt?
Note: Be sure to show how you arrived at your answer.