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 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 $1,201. 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 51 Inventories 360 Long-term debt 1,150 Plant and equipment, net 2,160 Common equity 1,669 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. %

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 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 $1,201. 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 51 Inventories 360 Long-term debt 1,150 Plant and equipment, net 2,160 Common equity 1,669 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. %

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

See similar textbooks

Similar questions

The total book value of WTC's equity is $13 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firms bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 7% andthe firm's tax rate is 21%. What is the company's WACC? (Don't round intermediate calculations, enter final answers as a percent rounded to 2 decimal places.)
Granite Works maintains a debt-equity ratio of .65 and has a tax rate of 32%. The pretax cost of debt is 9.8%. There are 25,000 shares of stock outstanding with a beta of 1.2 and a market price of $19 a share. The current market risk premium is 8.5% and the current risk-free rate is 3.6%. This year, the firm paid an annual dividend of $1.10 a share and expects to increase that amount by 2% each year. Using an average expected cost of equity, what is the WACC?
a) Table below shows the simplified balance sheet information for Jess Elton Enterprise. The debt has just been refinanced at an interest rate of 6% (short term) and 8% (long term). The expected rate of return on the company's shares is 15%. There are 7.46 million shares outstanding, and the shares are trading at $46. The tax rate is 35%. Calculate this company's weighted-average cost of capital (WACC) based on the market weighted scheme. 1,500 Short-term debt 75,600 Cash and marketable securities Accounts receivable Inventory Current assets Property, plant, and equipment Other assets Total 120,000 Accounts payable 125,000 Current liabilities 246,500 302,000 Long-term debt 89,000 Shareholders' equity 637,500 Total 62,000 137,600 208,600 637,500 246,300 b) Discuss the different funding strategies a company may follow in order to finance its cumulative working capital requirements.
6
Generous Corporation has a cost of equity of 10.8 percent, the YTM on the company's bonds is 6.3 percent, and the tax rate is 35 percent. The company's bonds sell for 103.6 percent of par. The debt has a book value of $420,000 and total assets have a book value of $956,000. If the market-to-book ratio of equity is 2.86 times, what is the company's WACC? 8.90% 780% 9.32% 792%
The total book value of WTC's equity is $13 million, and book value per share is $26. The stock has a market-to-book ratio of 1.5, and the cost of equity is 15%. The firm's bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 10%, and the firm's tax rate is 21%. What is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Western Electric has 21,000 shares of common stock outstanding at a price per share of $61 and a rate of return of 15.6 percent. The firm has 11,000 shares of $8 preferred stock outstanding at a price of $48 a share. The outstanding debt has a total face value of $275,000 and currently sells for 104 percent of face. The yield to maturity on the debt is 8.81 percent. What is the firm's weighted average cost of capital if the tax rate is 35 percent? a. 14.52 percent b. 13.92 percent c. 13.44 percent d. 14.37 percent e. 14.19 percent
Bulldogs Inc., that has an applicable tax rate of 25%, is half funded by the creditors and the remaining by ordinary shareholders. The Weighted Average cost of Capital of the firm is 20%. Based on the discounted cash flow model the Bulldogs Inc. computed its cost of equity at 10%. What is the after-tax cost of debt? (In percentage, type the percentage sign on your answer)
b. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $30 million and it has a dividend payout ratio of 30%. Its capital budget is B = $100 million this year. The annual yield on the company's debt is 7% and the company's tax rate is T = 30%. The company's common stock trades at Po = $100 per share, and its current dividend of Do = $4 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amount issued. What is the company's weighted average cost of capital?
Charlotte's Crochet Shoppe has 17,300 shares of common stock outstanding at a price per share of $85 and a rate of return of 12.01 percent. The company also has 380 bonds outstanding, with a par value of $2,000 per bond. The pretax cost of debt is 6.33 percent and the bonds sell for 100.2 percent of par. What is the firm's WACC if the tax rate is 40 percent?

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS