Question

Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 8%, and its common stock currently pays a $3.25 dividend per share (D0 = $3.25). The stock's price is currently $31.50, its dividend is expected to grow at a constant rate of 9% per year, its tax rate is 25%, and its WACC is 14.45%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.   %

eBook The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 14%, its before-tax cost of debt is 11%, 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 $1,181. 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 41 Inventories 360 Long-term debt 1,140 Plant and equipment, net 2,160 Common equity 1,689 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

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ke - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General Wrap Text Merge Merge & Center - Center Σ AutoSum : A Fill 2 m Sort & Find & SF $ 4:0 .00 88 Insert Delete Format % % Number Conditional Format Formatting as Table Styles Cell Styles 2 Clear Filter Editing Select Alignment Cells File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste Format Painter BI U D A Clipboard Font FU81 fix FO F P FQ 72 73 74 75 FS FT FU F V FW FR HOOK DO= PO = 3.25 31.5 76 9% DO*(1+g)/PO + 8 3.25*(1+0.09)/31.50 +0.09 20.246032% ke = ke = ke = 77 78 79 80 81 82 83 84 85 kd = TAX RATE = WACC = 8.00% 25% 14.45% 86 87 WACC = 14.45% = 14.45% = 14.45% = 8.45% = We = Wd = DEBT %= We*ke + (1-We)*kd*(1-t) We*20.246032% + (1-We)*8%*(1-0.25) We*20.246032% + (1-We)*6% We*20.246032% +6% -(We)*6% We*14.246032% 0.5931 0.4069 Wd= 1- Wel 40.69% 88 89 90 91 92 HIM Rea ANSWER convexity DGM betaport future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean RI KE CAPM UTILITY, SHARPE, beta ferences: 218 YIELD bond portfolio BO! 120% 9 * WACC - O -_ + 2. O ENG 27-11-2019

ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Dr General Wrap Text Merge & Center - $ -% Insert Delete Format Cell Styles Calibri -11AA = = = BI U D A Font for CY E Copy Paste Format Painter Clipboard DB561 - CW CX Conditional Format Formatting as Table Styles Σ AutoSum : A Fill Sort & Find & 2 Clear Filter Select Editing Alignment Number Cells CZ DA DB - DC DD DE DE 544 545 A B*C 546 PAULSON CALCULATION OF WACC SOURCE DEBT EQUITY (576 X 4) 547 AMOUNT 1181 2304 3485 WEIGHTS (W) 0.3389 0.6611 COC (%) WEIGHTED COST (W X COC) 8.25% 2.80% 14.00% 9.26% 548 549 550 WACC = 12.05% ANSWER 551 552 NOTE: COST OF DEBT(AFTER TAX)= 553 11%(1-0.25) = 8.25% COST OF DEBT(1-t) 554 555 556 557 NOTE : WEIGHT OF DEBT = 1181/3485 WEIGHT OF EQUITY = 2304/3485 558 559 560 561 562 563 M Rea ССА K convexity DGM betaport future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean KE CAPM UTILITY, SHARPE, beta ferences: CF135 YIELD bond portfolio WACC RI™O BO! 120% - -_ + 9 * 10 ENG 27-11-2019 2.