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 9%, and its marginal tax rate is 25%. Assumethat 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 576shares of common stock outstanding that sell for $4.00 per share.Liabilities And Equity$ 120Accounts payable and accrualsShort-term debt240360Long-term debt2,160Common equity$2,880Total liabilities and equityCalculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places.AssetsCashAccounts receivableInventoriesPlant and equipment, netTotal assets%$ 10611,1201,689$2,880

The weighted average cost of capital measures the typical cost a business pays to finance its…

Answered: Calculate Paulson's WACC using…

Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places. %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

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 9%, 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.
Liabilities And Equity
$ 120
Accounts payable and accruals
Short-term debt
240
360
Long-term debt
2,160
Common equity
$2,880
Total liabilities and equity
Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places.
Assets
Cash
Accounts receivable
Inventories
Plant and equipment, net
Total assets
%
$ 10
61
1,120
1,689
$2,880

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The Paulson Company’s year-end balance sheet is shown below. Its cost of commonequity is 14%, 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 isthe sum of the company’s short-term debt and long-term debt, equals $1,167. The firm has576 shares of common stock outstanding that sell for $4.00 per share. Calculate Paulson’sWACC using market-value weights.
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 $1,154. 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 44 Inventories 360 Long-term debt 1,110 Plant and equipment, net 2,160 Common equity 1,716 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. %
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