The Patrick Company\'s year-end balance sheet is shown below. Its cost of common

Question

The Patrick 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%. Assume that the firm's long-term debt sells at par value. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Patrick's WACC using market value weights. Round your answer to two decimal places.
Assets Liabilities And Equity
Cash $ 120
Accounts receivable 240
Inventories 360 Long-term debt $1,135
Plant and equipment, net 2,160 Common equity 1,745
Total assets $2,880 Total liabilities and equity $2,880

________ %

Explanation / Answer

WACC= 10(1-.4)x1135/2880 +17x1745/2880= 12.665%

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