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Old 09-14-2010, 12:12 PM
Ligurio Ligurio is offline
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Join Date: Sep 2010
Location: United States
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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.

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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