Question
Here is Establishment Industries market-value balance sheet (Figures in millions): Net working capital $ 920 Debt $ 1,400 Long-term assets 2,980 Equity 2,500 Value of
| Here is Establishment Industries market-value balance sheet (Figures in millions): |
| Net working capital | $ | 920 | Debt | $ | 1,400 |
| Long-term assets | 2,980 | Equity | 2,500 | ||
| Value of firm | $ | 3,900 | $ | 3,900 | |
| The debt is yielding 6.0%, and the cost of equity is 15.0%. The tax rate is 36%. 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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Introduction to Finance Markets, Investments and Financial Management
Authors: Ronald W. Melicher, Edgar A. Norton
16th edition
1119398282, 978-1-119-3211, 1119321115, 978-1119398288
