Here is Establishment Industries’ market-value balance sheet (Figures in million

Question

Here is Establishment Industries’ market-value balance sheet (Figures in millions):

The debt is yielding 6.8%, and the cost of equity is 14.2%. The tax rate is 31%. Investors expect this level of debt to be permanent.

How would the market-value balance sheet change if Establishment retired all its debt. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations.Round your answers to 1 decimal place.)

Here is Establishment Industries’ market-value balance sheet (Figures in millions):

Explanation / Answer

Cost of Debt (Kd) = 6.8%

After Tax = 6.8*69% = 4.692%

Cost of Equity (Ke) = 14.2%

Debt = 900/2900 = 31.03%

Equity = 2000/2900= 68.96%

WACC = 14.2*68.96% + 4.692*31.03% = 11.25%

New Market Value Balance Sheet

Net working Capital

                    -  

Debt

                -  

Long term Assets

       2,000.00

Equity

   2,000.00

Value

       2,000.00

   2,000.00

New Market Value Balance Sheet

Net working Capital

                    -  

Debt

                -  

Long term Assets

       2,000.00

Equity

   2,000.00

Value

       2,000.00

   2,000.00

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.