Calculating WACC

[dlamb]

This is a homework problem that I cannot figure out. Does anybody have any advice on how to calculate it?

Mullineaux Corporation has a target capital structure of 41 percent common stock, 5 percent preferred stock, and 54 percent debt. Its cost of equity is 13 percent, the cost of preferred stock is 6 percent, and the cost of debt is 8 percent. The relevant tax rate is 31 percent. WACC is....

I have the formula but I can't figure out the E/V or D/V

WACC= (E/V) x Re + (D/V) x Rd x (1-Tc)
= ? x 13% + ? x 8% x (1-.31)

 

[cptzack]

Preferred stock is a type of equity, therefore total equity is 41%+5% = 46%, but since the rates are different for each type of equity the formula has to be changed to accomodate the preferred stock thing.


wacc = cost of common stock + cost of preferred stock + cost of debt

cost of common stock = weightage of common stock*rate of common stock +weightageof preferred stock*r of pref stock+weightage of debt*(1-T)

weighage of common stock = 41/100
weightage of preferred stock = 5/100
weightage of debt = 56/100

rate of common stock = 13%
rate of preferref stock = 8%
Tax = 31%

WACC = 0.41*13%+0.05*8 + 0.56*(100-31)%
= 5.33 + 0.4 + 38.64
= 44.37 %