In: Accounting
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.)