What is mullineaux''s wacc

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Reference no: EM1376220

1) Computing Cost of Equity. Stock in CDB Industries has a beta of 0.90. The market risk premium is 7 percent and T-bills are currently yielding 4 percent. CDB's most recent bonus was $1.90 per share and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $41 per share what is your best estimate of CDB's cost of equity?

2) Computing WACC 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 12.5 percent the cost of preferred stock is 5.5 percent and the cost of debt is 7.2 percent. The pertinent tax rate is 35 percent.

a) What is Mullineaux's WACC?

b) The company president has approached you about Mullineaux's capital structure. He needs to know why the company doesn't use more preferred stock financing, since it costs less than debt. What would you say the president?

Reference no: EM1376220

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