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The debt has an interest rate of 8.50% (short term) and 10.50% (long term). The expected rate of return on the company's shares is 17.50%.
The debt has an interest rate of 8.50% (short term) and 10.50% (long term). The expected rate of return on the company's shares is 17.50%. There are 7.66 million shares outstanding, and the shares are trading at 36. 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.
The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in thousands) is as follows: Short-term debt Accounts payable Current liabilities 77,600 64,000 @ 141,600 Cash and marketable securities 3,500 Accounts receivable 122,000 Inventory 127,000 Current assets 252, 500 Property, plant, and equipment 214,000 Deferred taxes 47,000 Other assets 87,000 Total 600, 500 210, 600 Long-term debt Shareholders' equity Total 248,300 600, 500 The debt has an interest rate of 8.50% (short term) and 10.50% (long term). The expected rate of return on the company's shares is 17.50%. There are 7.66 million shares outstanding, and the shares are trading at 36. 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 capitalStep by Step Solution
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