The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 16%, its before-tax cost of debt is 8%, 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 $1,108. 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 | 58 | |
Inventories | 360 | Long-term debt | 1,050 | |
Plant and equipment, net | 2,160 | Common equity | 1,762 | |
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
MV of equity = price*shares = 4*576 = 2304
Total Capital value = Value of Debt + Value of Equity |
=1108+2304 |
=3412 |
Weight of Debt = Value of Debt/Total Capital Value |
= 1108/3412 |
=0.3247 |
Weight of equity = 1-D/A |
Weight of equity = 1-0.3247 |
W(E)=0.6753 |
After tax cost of debt = cost of debt*(1-tax rate) |
After tax cost of debt = 8*(1-0.25) |
= 6 |
WACC=after tax cost of debt*W(D)+cost of equity*W(E) |
WACC=6*0.3247+16*0.6753 |
WACC =12.75% |
The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 16%,...
The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 16%, its before-tax cost of debt is 12%, 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 $1,151. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120...
The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 16%, its before-tax cost of debt is 12%, 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 $1,174. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120...
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