Question

The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 18%, 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 $1,189. 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	59
Inventories	360		Long-term debt	1,130
Plant and equipment, net	2,160		Common equity	1,681
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

fix X +C28/$C$34 D28 A В D E WACC (Cost %xWeights) value Cost % Market value capital 27 28 Cost of equity 18.00% $ 11.87% 2,304 0.6596 29 30 31 Debt (After tax cost) 7.50% $ 10%* (1-25%) 2.55% 1,189 0.3404 32 33 Total 34 3,493 1.0000 35 36 Weighted average cost of capital (WACC) 14.43%

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