WACC The Patson Company\'s year-end balance sheet is shown below. Its cost of co

Question

WACC The Patson Company's year-end balance sheet is shown below. Its cost of common equity is 14%, its 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 $1,129. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120 Accounts payable and 10 Accounts receivable Inventories Plant and equipment, accruals 240 Short-term debt 360 Long-term debt 49 1,080 1,741 2,160 Common equity net Total assets $2,880 Total liabilities and $2,880 equity Calculate Pawlson's WACC using market-value weights. Round your answer to two decimal places. Do not round your intermediate calculations.

Explanation / Answer

Dear student thankyou for using chegg Statement showing computations Particulars No   Cost MV Weight Cost WACC Debt - -                   1,080.00                                0.32 7.2000% 2.30% Preferred Stock Common Equity                  576.00                                         4.00                   2,304.00                                0.68 14.00% 9.53%                   3,384.00                                1.00 11.83% Pretax cost of debt 12.0% Tax Rate 40% kd = 12%(1-0.4)= 7.20% ke = 14% Therefore, Pawlson's WACC using market value weight is 11.83% Note: short term debt is not used while calculating WACC.

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