Here is Establishment Industries' market value balance sheet ($ millions): The debt is yielding 7.6% and the

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Here is Establishment Industries' marketÂ· value balance sheet ($ millions):

Net working capital Debt $ 550 $ 800 $2,150 Long-term assets $1,900 Equity Value of firm $2,700 $2,700

The debt is yielding 7.6% and the cost of equity is 14%. The tax rate is 37%. Investors expect this level of debt to be permanent.
a. What is Establishment's WACC?
b. Write out a market-value balance sheet assuming Establishment has no debt. Use your answer to problem 4.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...

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Fundamentals of Corporate Finance

ISBN: 978-1259024962

6th Canadian edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim

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Question Posted: Nov 14, 2017 02:29 AM

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Here is Establishment Industries' market value balance sheet ($ millions): The debt is yielding 7.6% and the

Question:

Net working capital Debt $ 550 $ 800 $2,150 Long-term assets $1,900 Equity Value of firm $2,700 $2,700

Step by Step Answer:

a WACC 1127 b If the firm has no debt the market value of the firm would fall by the present va...View the full answer

Fundamentals of Corporate Finance

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