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 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 $1,202. The firm has 576 shares of common stock outstanding that sell for $4.00 per share.Assets Liabilities And EquityCash$ 120 Accounts payable and accruals$ 10Accounts receivable240 Short-term debt62Inventories360 Long-term debt1,140Plant and equipment, net2,160 Common equity1,668Total assets$2,880 Total liabilities and equity$2,880Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places. %

When a company purchases and sells debt at a fixed price in the open market this price is called…

Answered: The Paulson Company's year-end balance…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 3P

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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 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 $1,202. 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	62
Inventories	360		Long-term debt	1,140
Plant and equipment, net	2,160		Common equity	1,668
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.

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