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Assets Liabilities And Equity

WACC The Patrick Company's year-end balance sheet is shown below. Its cost of common equity is 16%, its before-tax cost of debt is 13%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firm has 576 shares of common stock outstanding that sell for $4.00. Calculate Patrick's WACC using market value weights.

Assets Liabilities and Equity

Cash: $ 120
Accounts receivable: 240
Inventories: 360
Long-term debt: $1,152
Plant and equipment: 2,160
Common equity: 1,728

Total assets: $2,880
Total liabilities: $2,880

Solution Preview

Total sharevalue = 576*4= 2304

Total market value = 2304+1152= ...

Solution Summary

The solution provides a classic example to compute WACC using market value weights.