Video Excel Online Structured Activity: WACC The Paulson Company\'s year-end bal
ID: 1171532 • Letter: V
Question
Video Excel Online Structured Activity: WACC 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 10%, and its marginal tax rate is 40% value. The firm's total debl, which is the sum of the company's short-term debt and long term . Assume that the firm's long-term debt sells at par 1,120. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below ate Paulson's WACC using market-value weights. Round your answer to two decimal places. Do not round Calcul your intermediate calculations Assets Liabilities And Equity Accounts payable and Cash $120 $ 10 60 $1,060 1,750 $2,880 Accounts receivable 240 Short-term debt 360 Long-term debt Plant and equipment, net 2,160 Common equity Total liabilities and equity Total assets $2,880 0%) 1:17 PMExplanation / Answer
*At Par = At face value
Market Value of Total debt = Long Term debt + Short Term Debt = 1060 ( As sold on Par* ) + 60 = 1020
Market Value of Total Equity =Common Equity + MV of Outstanding shares = 1750 + ( Outstanding shares * 4 $ )
= 1750 * (576 * 4$ ) =1750+ 2304 = 4054
Total Capital = MV Debt + MV Equity = 1020 +4054 = 5074
% of Debt = 1020 / 5074 = 20.10%
% of Equity = 1 - % of Debt = 1 - 20.10% = 79.90 %
Pre tax cost of Debt = 10%
Post Tax cost of debt = 10 % * ( 1 - Marginal Tax rate ) = 10% * ( 1 - 40% ) = 10% * 60% = 6%
Cost of Equity = 17 %
WACC on MV weights method = ( % Equity * Cost of Equity ) + ( % of Debt * Post Tax Cost Of Debt )
= ( 79.90% * 17% ) + ( 20.10% * 6% ) = 13.58% + 1.21 % = 14.79%
WACC = 14.79 %
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