Problem 19-8 WACC The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in thousands) is as follows: Short-term debt Accounts payable Current liabilities 77,400 63,800 141,200 Cash and marketable securities 3,300 Accounts receivable 121,800 Inventory 126, 800 Current assets 251, 900 Property, plant, and equipment 213, 800 Deferred taxes 46,800 Other assets 87,200 Total 599,700 Long-term debt 210,400 Shareholders' equity Total 248, 100 599, 700 The debt has an interest rate of 8.00% (short term) and 10.00% (long term). The expected rate of return on the company's shares is 17.00%. There are 7.64 million shares outstanding, and the shares are trading at 38. 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.) Cost of equity % b. Calculate the WACC after the capital restructuring. (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weighed-average cost of capital i % Problem 19-8 WACC The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in thousands) is as follows: Short-term debt Accounts payable Current liabilities 77,400 63,800 141,200 Cash and marketable securities 3,300 Accounts receivable 121,800 Inventory 126, 800 Current assets 251, 900 Property, plant, and equipment 213, 800 Deferred taxes 46,800 Other assets 87,200 Total 599,700 Long-term debt 210,400 Shareholders' equity Total 248, 100 599, 700 The debt has an interest rate of 8.00% (short term) and 10.00% (long term). The expected rate of return on the company's shares is 17.00%. There are 7.64 million shares outstanding, and the shares are trading at 38. 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.) Cost of equity % b. Calculate the WACC after the capital restructuring. (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weighed-average cost of capital i %
