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 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 $1,167. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Paulson’s WACC using market-value weights. Assets Cash $ 120 Accounts receivable 240 Inventories 360 Plant and equipment, net 2,160 Total assets $2,880 Liabilities and Equity Accounts payable and accruals $ 10 Short-term debt 47 Long-term debt 1,120 Common equity 1,703 Total liabilities and equity $2,880
The Paulson Company’s year-end
WACC using market-value weights.
Assets
Cash $ 120
Accounts receivable 240
Inventories 360
Plant and equipment, net 2,160
Total assets $2,880
Liabilities and Equity
Accounts payable and accruals $ 10
Short-term debt 47
Long-term debt 1,120
Common equity 1,703
Total liabilities and equity $2,880
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