WACC The Paulson Company\'s year-end balance sheet is shown below. Its cost of c
ID: 2786436 • Letter: W
Question
WACC
The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 14%, its before-tax cost of debt is 10%, 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 $1,167. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Paulson's WACC using market-value weights.
Assets
Cash $120
Accounts Receivable 240
Inventories 360
Plant and equipment, net 2,160
Total assets $2,880
Liabilities and Equity
Accounts Payable and accruals $10
Short-term debt 47
Long-term debt 1,120
Common Equity 1,703
Total liabilities and equity $2,880
Explanation / Answer
market value of equity=576*4=2304
value of debt=1167
WACC=(2304/(2304+1167))*14%+(1167/(2304+1167))*10%*(1-40%)
=11.31%
the above is the answer
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