The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 16%, 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 $1,140. 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 40 Inventories 360 Long-term debt 1,100 Plant and equipment, net 2,160 Common equity 1,730 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 16%, 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 $1,140. 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 40 Inventories 360 Long-term debt 1,100 Plant and equipment, net 2,160 Common equity 1,730 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
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The Paulson Company's year-end
| Assets | Liabilities And Equity | |||
| Cash | $ 120 | Accounts payable and accruals | $ 10 | |
| Accounts receivable | 240 | Short-term debt | 40 | |
| Inventories | 360 | Long-term debt | 1,100 | |
| Plant and equipment, net | 2,160 | Common equity | 1,730 | |
| 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.
%
Expert Solution
Step 1
Data given:
Cost of equity(Ke) = 16%
Before-tax cost of debt (Kd) = 8%
Tax rate (T) = 25%
Total debt = $ 1,140
Total shares outstanding = 576
Price of stock (Po) = $4 per share
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