The Patrick Company\'s year-end balance sheet is shown below. It\'s cost of comm

Question

The Patrick Company's year-end balance sheet is shown below. It's cost of common equity is 16%, its before-tax cost of debt is 13%, and its marginal tax rate is 40%.Assume that the firm's long-term debt sells at par value. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Patrick's WACC using market value weights.

Assets:

Cash                                 120

Accounts receivable            240
Inventories                         360 
Plant & Equipment, net     2160 
Total Assets                      2880 

Liabilities & Equity:

Long term debt                 1152

Common Equity                 1728

Total Liabilities & Equity    2880

Explanation / Answer

(1152/(2304+1152))*(.13*(1-.4)+(2304/(2034+1152))*(.16) = .13267 or 13.267% - Please remember to rate lifesave!! Thanks!

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