eBook The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is...

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The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 17%, its before-tax cost of debt is 8%, and its marginal tax rate is 25%. 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 $1,190. 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 accruals	$ 10
Accounts receivable	240	Short-term debt	60
Inventories	360	Long-term debt	1,130
Plant and equipment, net	2,160	Common equity	1,680
Total assets	$2,880	Total liabilities and equity	$2,880

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

%

Expert Solution

Computation of WACC
		Market Value
Particulars	Cost	Amount	Weights
Common stock equity	17%	2,304.00	0.66
Short term debt	6%	1,190.00	0.34
long term debt

		3,494.00	1

WACC(%)		13.26
		(0.6617)+(0.346)

jeff jeffy answered 1 year ago

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