5. Problem Problem Walk-Through Problen 10-9 WACC The Patrick Company\'s year-en

Question

5. Problem Problem Walk-Through Problen 10-9 WACC The Patrick Company's year-end balance sheet is shown below. Its cost of common equity is 14% ts before tax cost of debt is 12%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,214. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Patrick's WACC using market value weights, Round your answer to two decimal places. Assets Liabilities And Equity Cash S 120 Accounts payable and 10 accruals Short-term debt Long-term debt Common equity Accounts receivable 240 360 2,160 64 $1,150 1,656 $2,880 Plant and equipment, net Total assets 2,80 Total liabilities and equity

Explanation / Answer

Calculation of Weighted Average cost of Capital (WACC) using market value weights Capital Market Value Market Value weights Cost of capital Multiplication A B C D C*D Equity 2304           0.65 0.14                    0.0917 Debt 1214           0.35 0.072                    0.0248 WACC                    0.1165 WACC 11.65% Working After tax cost of debt = Before tax cost of debt * (1 -tax rate) = 12%*(1-0.40) = 0.072

Related Questions

Navigate

• Browse (All)
• Browse 5
• Subjects

---

---

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