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Mullineaux Corporation has a target capital structure of 50 percent common stock, 10 percent preferred stock, and 40 percent debt

Mullineaux Corporation has a target capital structure of 50 percent common stock, 10 percent preferred stock, and 40 percent debt
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Mullineaux Corporation has a target capital structure of 50 percent common stock, 10 percent preferred stock, and 40 percent debt. Its cost of equity is 16 percent, the cost of preferred stock is 7.5 percent, and the cost of debt is 9 percent. The relevant tax rate is 40 percent. a. What is Mullineaux’s WACC? b. The company president has approached you about Mullineaux’s capital structure. He wants to know why the company doesn’t use more preferred stock financing, since it costs less than debt. What would you tell the president? NOTE: This question is NOT our property; we are only suggesting solution of this question.

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