The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in € thousands) is as follows: Cash and marketable securities (3,400 Accounts receivable Inventory Current assets Property, plant, and equipment Deferred taxes Other assets Total 121,900 126,900 €252,200 213,900 46,900 87,100 €600,100 Cost of equity Short-term debt Accounts payable Current liabilities Long-term debt Shareholders' equity % Total The debt has an interest rate of 8.25% (short term) and 10.25% (long term). The expected rate of return on the company's shares is 17.25%. There are 7.65 million shares outstanding, and the shares are trading at €37. The tax rate is 25%. Assume the company issue €50 million in new equity and uses the proceeds to retire long-term debt. Also assume the company's borrowing rates are unchange and the short-term debt is permanent. Use the three-step procedure. € 77,500 63,900 €141,400 210,500 248,200 €600,100 a. Calculate the cost of equity after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a perce rounded to 2 decimal places.)
The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in € thousands) is as follows: Cash and marketable securities (3,400 Accounts receivable Inventory Current assets Property, plant, and equipment Deferred taxes Other assets Total 121,900 126,900 €252,200 213,900 46,900 87,100 €600,100 Cost of equity Short-term debt Accounts payable Current liabilities Long-term debt Shareholders' equity % Total The debt has an interest rate of 8.25% (short term) and 10.25% (long term). The expected rate of return on the company's shares is 17.25%. There are 7.65 million shares outstanding, and the shares are trading at €37. The tax rate is 25%. Assume the company issue €50 million in new equity and uses the proceeds to retire long-term debt. Also assume the company's borrowing rates are unchange and the short-term debt is permanent. Use the three-step procedure. € 77,500 63,900 €141,400 210,500 248,200 €600,100 a. Calculate the cost of equity after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a perce rounded to 2 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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Transcribed Image Text:The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in thousands) is as follows:
Cash and marketable securities ( 3,400
Accounts receivable
Inventory
121,900
126,900
Current assets
€252,200
Property, plant, and equipment
Deferred taxes
Other assets
Total
Cost of equity
%
Cost of equity
213,900
45,900
87,100
€600,100
Short-term debt
Accounts payable
Current liabilities
Long-term debt
Shareholders' equity
The debt has an interest rate of 8.25% (short term) and 10.25% (long term). The expected rate of return on the company's shares is
17.25%. There are 7.65 million shares outstanding, and the shares are trading at €37. The tax rate is 25%. Assume the company issues
€50 million in new equity and uses the proceeds to retire long-term debt. Also assume the company's borrowing rates are unchanged
and the short-term debt is permanent. Use the three-step procedure.
17.25%
Total
a. Calculate the cost of equity after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places.)
Weighed-average cost of capital
€ 77,500
63,900
€141,400
210,500
a. Calculate the cost of equity after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places.)
248,200
€600,100
12:25 %
b. Calculate the WACC after the capital restructuring (Do not round intermediate calcul ons.
rounded to 2 decimal places.)
your swer a percent
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