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Old 09-14-2010, 01:12 PM
Ligurio Ligurio is offline
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Join Date: Sep 2010
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Default WACC Problem

Can someone help me answer this problem ?

The Patrick Company's cost of common equity is 16 percent, its before-tax cost of debt is 13 percent, and its marginal tax rate is 40 percent. The stock sells at book value. Using the following balance sheet, calculate Patrick's WACC.

Assets
Cash: $120
Accounts receivable: 240
Inventories: 360
Plant and equipment, net: 2,160
Total assets: 2,880

Liabilities and equity
Long term-debt: $1,152
Common equity: 1,728
Total liabilities and equity: 2,880

The problem is from the book: Fundamentals of Financial Management, 11th Edition, Eugene F. Brigham. Problem 10-9, Chapter 10.

Thx in advance to all.
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