Question

Video Excel Online Structured Activity: WACC 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 40%. 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 $1,191. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. XE Open spreadsheet Calculate Paulson's WACC using market value weights. Round your answer to two decimal places. Do not round your intermediate calculations. Assets Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable 240 Short-term debt 61 Inventories 360 Long-term debt $1,130 Plant and equipment, net 2,160 Common 1,679 equity Total liabilities and $2,880 Total assets $2,880 equity olo Check My Work Reset Problem

Answer 1

Solution: Financing Debt Equity Market value Market weight after tax cost of capital weighted cost b=a/3495 d=b*c 1191 0.34077 6.00% y 2.04% 2304 x 0.65923 15.00% 9.89% 3495 WACC 11.93% working: x=576*4 y=10%*(1-0.4) 2304 6.00%