Question
Here is Establishment Industries market-value balance sheet (Figures in millions): Net working capital $ 850 Debt $ 1,320 Long-term assets 2,900 Equity 2,430 Value of
| Here is Establishment Industries market-value balance sheet (Figures in millions): |
| Net working capital | $ | 850 | Debt | $ | 1,320 |
| Long-term assets | 2,900 | Equity | 2,430 | ||
| Value of firm | $ | 3,750 | $ | 3,750 | |
| The debt is yielding 6.1%, and the cost of equity is 14.9%. The tax rate is 35%. 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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