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    The Market-value balance sheet and WACC calculation

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    Here is Establishment Industries's market-value balance sheet (figures in millions)

    Net working capital $ 550 Debt $ 800
    Long-Term assets $2150 Equity $1900
    ----- -----
    Value of firm $2700 $2700

    The debt is yielding 7 percent, and the cost of equity is 14 percent. The tax rate is 35 percent. Investors expect this level of debt to be permanent.

    a. What is Establishment's WACC?
    b. assuming Establishment has no debt. Use your answer to Problem 4.

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    Solution Preview

    The attached Microsoft Word document provides detailed solutions to the problems given above.

    Detailed explanations are made for WACC and how to calculate the value.

    The Weighted Cost of Capital is the carrying cost of all sources of financing that is available to a company. In most companies, financing consists of debt ...

    Solution Summary

    The attached Microsoft(r) Word document provides explanation of WACC (Weighted average cost of capital). The document also provides the calculations and steps in computing the WACC.

    Furthermore, the market-value balance sheet is presented.