el Online Activity: WACC ue Today at 11 PM EDT stion 1 Excel Online Structured A
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el Online Activity: WACC ue Today at 11 PM EDT stion 1 Excel Online Structured Activity: WACC The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 17%, its before. tax cost of debt is 10%, and its marginal tax rate is 40%. Assume that the firm's long term debt sels at par value. The firm's total debt, which is the sum of the company's short-term debt and iong-term debt, equals $1,120. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below Calculate Paulson's WACC using market-value weights.Round your answer to two decimal places. Do not round your intermediate calculations. Assets Liabilities And Equity Accounts payable and $ 10 60 1,060 1,750 Total liabilities and ,880 Cash $120 accruals Short-term debt Long-term debt Common equity Accounts receivable 240 360 2,160 Plant and equipment, net Total assets $2,880 equity 14.79 3 % Check My Work oeset Protiem Current 0/10 pts (0%) @ rP??d? 249 PM 6/7/2018Explanation / Answer
WACC Cost of common equity 17% Before-tax cost of debt 10% Marginal Tax rate 40% Common shares O/s 576 Current stock price $4 Long term debt sells at par value Yes Balance Sheet Assets Liabilities and Equity Cash $120 Accounts payable and accruals $10 Account receivable $240 Short-term Debt $60 Inventories $360 Long-term debt $1060 Plant and equipment, net $2160 Common Equity $1750 Total assets $2880 Total Liabilities and equity $2880 Formulas Market Value of Debt 1130 As the firms debt sells at par Market Value of Equity 2304 576*4 Total Capital 3434 Percentage of Debt 0.3291 1- equity i.e. 1-0.6709 Percentage of common equity 0.671 0.670937682 After Tax cost of debt 0.06 10*(1-0.40)*% WACC 1130/3434*0.06 + 2304/3434*0.17 0.133803 WACC is 13.38%
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