A table below shows a simplified balance sheet for Randy Co. The debt has just been refinanced at an interest rate of 6% (short term) and 8% (long term). The expected rate of return on the company's shares is 15%. The tax rate is 25%.
Cash and marketable securities 1,500
Short term debt
Account receivable
120.000 Account payable
75.600
62.000
Inventory
125,000 Current liabilities
Current assets
246.500
Property. plant and equipment 212.000 Long term debt
208.600
Deterred taxes
45.000
Other assets
89,000 Shareholders' equity 246.300
592,500 Total
592.500
Requirement:
How will Randy's WACC and cost of equity change if it issues €50 million in new equity and uses the proceeds to retire long-term debt? Use three three-step procedures