Question
1. Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt
1. Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 9%, and its marginal tax rate is 40%. The current stock price is P0 = $26.00. The last dividend was D0 = $2.00, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your intermediate calculations.
- rs = %
- WACC = %
2.
he Pawlson Company's year-end balance sheet is shown below. Its cost of common equity is 15%, its before-tax cost of debt is 9%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals $1,124. 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 | 64 | |
Inventories | 360 | Long-term debt | 1,060 | |
Plant and equipment, net | 2,160 | Common equity | 1,746 | |
Total assets | $2,880 | Total liabilities and equity | $2,880 |
Calculate Pawlson's WACC using market-value weights. Round your answer to two decimal places. Do not round your intermediate calculations. %
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