Calculate Paulson WACC using market-value weights

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Question - The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 16%, its before-tax cost of debt is 10%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,116. The firm has 576 shares of common stock outstanding that sell for $4.00 per share.

Assets

Liabilities and Equity

Cash

$120

Accounts payable and accruals

$10

Accounts receivable

240

Short-term debt

46

Inventories

360

Long-term debt

1,070

Plant and equipment, net

2,160

Common equity

1,754

Total assets

$2,880

Total liabilities and equity

$2,880

Required - Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations.

Reference no: EM133066568

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