The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in € thousands) is as...

The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in € thousands) is as follows


Cash and marketable securities	€	2,700	Short-term debt	€	76,800
Accounts receivable		121,200	Accounts payable		63,200
Inventory		126,200	Current liabilities	€	140,000
Current assets	€	250,100
Property, plant, and equipment		213,200	Long-term debt		209,800
Deferred taxes		46,200
Other assets		87,800	Shareholders' equity		247,500
Total	€	597,300	Total	€	597,300

The debt has an interest rate of 6.50% (short term) and 8.50% (long term). The expected rate of return on the company's shares is 15.50%. There are 7.58 million shares outstanding, and the shares are trading at €44. The tax rate is 25%. Assume the company issues €50 million in new equity and uses the proceeds to retire long-term debt. Also assume the company's borrowing rates are unchanged and the short-term debt is permanent. Use the three-step procedure.

a. Calculate the cost of equity after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. Calculate the WACC after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Expert Solution

ekkarill92 answered 2 years ago

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