Problem 19-8 WACC

The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in thousands) is as follows:

Cash and marketable securities 2,100 Short-term debt 76,200

Accounts receivable 120,600 Accounts payable 62,600

Inventory 125,600 Current liabilities 138,800

Current assets 248,300

Property, plant, and equipment 212,600 Long-term debt 209,200

Deferred taxes 45,600

Other assets 88,400 Shareholders' equity 246,900

Total 594,900 Total 594,900

The debt has an interest rate of 4.50% (short term) and 6.50% (long term). The expected rate of return on the company's shares is 13.50%. There are 7.52 million shares outstanding, and the shares are trading at 52. The tax rate is 25%. Assume the company issues 50 million in new equity and uses the proceeds to retire long-term debt. Also assume the company's borrowing rates are unchanged and the short-term debt is permanent. Use the three-step procedure.

a. Calculate the cost of equity after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. Calculate the WACC after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)