Excel Online Structured Activity: WACC The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 17. its before-tax cost of debt is 8. and its marginatates 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, equal $1,115. The firm has 576 shares of common stock outstanding that sell for 4.00 per share. The data has been collected in the Microsoft Excel Online e below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet Calculate Paulson's WACC using market value weights. Round your answer to two decimal places. Do not round your intermediate calculations. Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable Short-term debt Inventories Long-term debt $1.060 Plant and equipment, 2.160 Common equity 1.755 Total assets $2.580 Totalities and equity $2.580 WACC Cost of common equity (rs) Before-tax cost of debt (ra) Marginal tax rate (T) Common shares outstanding Current stock price Long-term debt sells at par value 17.00% 8.00% 40.00% 576 $4.00 Yes Balance Sheet: Assets Cash Account receivable Inventories Plant and equipment, net Total assets $120.00 $240.00 $360.00 $2,160.00 $2,880.00 Liabilities and Equity Accounts payable and accruals Short-term debt Long-term debt Common equity Total liabilities and equity $10.00 $55.00 $1,060.00 $1,755.00 $2,880.00 5 6 9 Market value of total debt Market value of common equity Total capital Formulas #N/A #N/A #N/A 3 Percentage of debt 4 Percentage of common equity #N/A #N/A 6 After-tax cost of debt #N/A 8 Weighted Average Cost of Capital (WACC) #N/A Excel Online Structured Activity: WACC and optimal capital budget Adamson Corporation is considering four average-risk projects with the following costs and rates of return Project Cost $2,000 3.000 5.000 2,000 Expected Rate of Return 26.00% 15.00 13.75 12.50 The company estimates that it can issue debt at a rate of -9%, and its tax rate is 35%. It can issue preferred stock that pays a constant dividend of $5 per year at $52 per share. Also its common stock currently sells for $34 per share the next expected dividend, D, is $3.50; and the dividend is expected to grow at a constant rate of per year. The target capital structure consists of 75.common stock, 15% debt, and 10% preferred stock. The data has been collected in the Microsoft Excel Online nle below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet a. What is the cost of each of the capital components Round your answers to two decimal places. Do not round your intermediate calculations Cost of debt Cost of preferred stock Cost of retained earnings b. What is Adamson's WACC Round your answer to two decimal places. Do not round your intermediate calculations C. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept? Project 1 Project 2 Project 3 Project 4 1 WACC and optimal capital budget 5 6 7 8 9 10 11 12 Cost of debt, Tax rate, T Preferred dividend Preferred stock price, Pp Common stock price, Po Expected common dividend, D, Common stock constant growth rate, 9n % common stock in capital structure % debt in capital structure % preferred stock in capital structure 9.00% 35.00% $5.00 $52.00 $34.00 $3.50 6.00% 75.00% 15.00% 10.00% After-tax Cost Weighted Cost 15 Cost of capital components & WACC calculation: After-tax cost of debt, ro(1-T) Cost of preferred stock, Cost of common stock, is Weights 15.00% 10.00% 75.00% WACC = Project acceptance analysis: Projects Accept Project? Y/N Expected Rate Cost of Return $2,000 16.00% $3,000 15.00% $5,000 13.75% $2,000 12.50% Formulas Cost of capital components & WACC calculation: 30 After-tax cost of debt, ra(1-T) 131 Cost of preferred stock, rp 32 Cost of common stock, is Weights After-tax Cost 15.00% #N/A 10.00% #N/A 75.00% #N/A WACC = Weighted Cost #N/A # #N/A #N/A 35. Project acceptance analysis: 36 Projects WN - Expected Rate Cost of Return $2,000 16.00% $3,000 15.00% $5,000 13.75% $2,000 12.50% Accept Project? Y/N #N/A #N/A #N/A #N/A
