The Pawlson Company\'s year-end balance sheet is shown below. Its cost of common

Question

The Pawlson Company's year-end balance sheet is shown below. Its cost of common equity is 18%, its before-tax cost of debt is 11%, 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 $1,122. The firm has 576 shares of common stock outstanding that sell for $4.00 per share.

Calculate Pawlson's WACC using market-value weights. Round your answer to two decimal places. Do not round your intermediate calculations.
%

Assets Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable 240 Short-term debt 42 Inventories 360 Long-term debt 1,080 Plant and equipment, net 2,160 Common equity 1,748 Total assets $2,880 Total liabilities and equity $2,880

Explanation / Answer

WACC = 14.27%

Market value weight cost weight*cost equity                        2,304 0.6725 18.00% 0.1211 debt                        1,122 0.3275 6.60% 0.0216

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