1. Examine the current capital structure of XYZ and determine the WACC of the company. Assume that XYZ's tax rate is 36%. To compute the WACC first find the after-tax cost of debt, the cost of equity, and the proportions of debt and equity in the firm. Assume that the cost of debt before tax is 7.5% for the firm. Show calculations.

The after-tax cost of debt =

Cost of equity =

Proportions of debt and equity in the firm (from the balance sheet) =

How to compute the WACC in this circumstance?

Why should the company be concerned with the WACC?

Provide insights into the capital structure of the company?

BEB		BalanceSheet
Assets
Currentassets:	2020	2021	change
Cash	1,500,000	1,800,000	300,000
Investments	1,000,000	1,025,000	25,000
Inventories	112,000,000	127,000,000	15,000,000
Accountsreceivable	11,950,000	12,500,000	550,000
Pre-paidexpenses	2,500,000	2,650,000	150,000
Other	0	0
Totalcurrentassets	128,950,000	144,975,000	16,025,000
Fixedassets:	2020	2021	change
Propertyandequipment	155,000,000	172,500,000	17,500,000
Leaseholdimprovements	0	0	0
Equityandotherinvestments	48,000,000	57,000,000	9,000,000
Totalfixedassets	203,000,000	229,500,000	26,500,000
Otherassets:	2020	2021	change
Goodwill	85,000,000	70,000,000	-15,000,000
Totalotherassets	85,000,000	70,000,000	-15,000,000
Totalassets	416,950,000	444,475,000	27,525,000
Liabilitiesandowner'sequity
Currentliabilities:	2020	2021	change
Accountspayable	38,500,000	43,200,000	4,700,000
Accruedwages	75,000,000	80,500,000	5,500,000
Accruedcompensation	10,000,000	10,255,000	255,000

Incometaxespayable	4,024,000	4,697,000	673,000
currentportionofLT debt	5,000,000	5,350,000	350,000
Other	0	0	0
Totalcurrentliabilities	132,524,000	144,002,000	11,478,000
Long-termliabilities:	2020	2021	change
Longtermdebt	115,000,000	130,000,000	15,000,000
Totallong-termliabilities	115,000,000	130,000,000	15,000,000
Owner'sequity:	2020	2021	change
Commonstock	122,000,000	122,000,000	0
Preferredstock	16,725,000	16,725,000	0
Accumulatedretainedearnings	30,701,000	31,748,000	1,047,000
Totalowner'sequity	169,426,000	170,473,000	1,047,000
Totalliabilitiesandowner'sequity	416,950,000	444,475,000	27,525,000