Question

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The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 15%, its before-tax cost of debt is 10%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,102. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable 240 Short-term debt 42 Inventories 360 Long-term debt 1,060 Plant and equipment, net 2,160 Common equity 1,768 Total assets $2,880 Total liabilities and equity $2,880 Calculate Paulson's WACC using market value weights. Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Ке After tax cost of Debt Pretax cost of Debt*(1-Tax rate) 0.10*(1-0.25) 0.075 7.50% Cost of Equity 0.15 Debt Equity Market value 1,102.00 2,304.00 3,406.00 weight cost 0.324 0.676 WACC WACC product 0.075 0.15 0.0243 0.1015 0.1257 12.57%