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 5.3%, and the cost of equity is 15.7%. The tax rate is 34%. Investors expect this level of debt to be permanent.

What is Establishment’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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

weight of debt = 700/3750 = .1867

Weight of equity = 3050/ 3750 = .8133

a)WACC = [5.3(1-.34) *.1867) +(15.7 *.8133)

            = .6531+ 12.7688

            = 13.42%

2)Balance sheet

Net working capital    630 Debt 0 Long term asset    [3120-700] 2420 equity 3050 TTotal 3050 Total 3050

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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