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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
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Phoniex University
Oct-2001 - Nov-2016
Problem 10-9
WACC
The Pawlson Company's year-end balance sheet is shown below. Its cost of common equity is 16%, its before-tax cost of debt is 11%, 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 $1,154. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Pawlson's WACC using market-value weights. Round your answer to two decimal places. Do not round your intermediate calculations.
| Assets | Â | Liabilities And Equity | ||
| Cash | $ 120 | Â | Accounts payable and accruals | $ 10 |
| Accounts receivable | 240 | Â | Short-term debt | 44 |
| Inventories | 360 | Â | Long-term debt | $1,110 |
| Plant and equipment, net | 2,160 | Â | Common equity | 1,716 |
| Total assets | $2,880 | Â | Total liabilities and equity | $2,880 |
%
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