Question

# Video Excel Online Structured Activity: WACC The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 14%, its before-tax cost of debt is 8%, and its marginal tax rate is 40%. 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 $1,199. 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. Open spreadsheet Calculate Paulson's WACC using market value weights. Round your answer to two decimal places. Do not round your intermediate calculations. Assets Cash $ 120 Accounts receivable 240 360 Liabilities And Equity Accounts payable and $ 10 accruals Short-term debt Long-term debt $1,140 Common equity 1.671 Inventories Plant and equipment, net 2,160 52.880 Total assets Total liabilities and equity $2,880 Check My Work

Answer 1

Cost of debt	8%
Tax rate	40%
After-tax cost of debt	=8%*(1-40%)
After-tax cost of debt	=4.80%
No of equity shares	576
Market price per share	4
Total market value	=576*4
Total market value	$    2,304.00
Calculation of WACC
	Cost	Capital		Weight	Weighted cost
	A	B	Weight	C=Capital component/Total capital	D=A*C
Debt	4.80%	$ 1,199.00	=1199/3503	34.23%	1.64%
Equity	14.00%	$ 2,304.00	=2304/3503	65.77%	9.21%
	Total capital	$ 3,503.00		Total WACC	10.85%