Question
Here is Establishment Industries market-value balance sheet (Figures in millions): Net working capital $ 600 Debt $ 1,000 Long-term assets 3,300 Equity 2,900 Value of
| Here is Establishment Industries market-value balance sheet (Figures in millions): |
| Net working capital | $ | 600 | Debt | $ | 1,000 |
| Long-term assets | 3,300 | Equity | 2,900 | ||
| Value of firm | $ | 3,900 | $ | 3,900 | |
| The debt is yielding 5.6%, and the cost of equity is 15.4%. The tax rate is 31%. Investors expect this level of debt to be permanent. |
| a. | What is Establishments WACC?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) |
| WACC | % |
| b. | How would the market-value balance sheet change if Establishment retired all its debt?(Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.) |
| New Market-Value Balance Sheet (figures in millions) | |||
| Net working capital | $ | Debt | $ |
| Long-term assets | Equity | ||
| Value of firm | $ | Total | $ |
|
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Case Studies in Finance Managing for Corporate Value Creation
Authors: Robert F. Bruner, Kenneth Eades, Michael Schill
7th edition
007786171X, 77861711, 978-0077861711
