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Here is Establishment Industries’ market-value balance sheet (Figures in millions): Net working capital $ 630 Debt $ 700 Long-term assets 3,120 Equity 3,050 Value of firm $ 3,750 $ 3,750 The debt is yielding 5.3%, and the cost of equity is 15.7%. The tax rate is 34%. Investors expect this level of debt to be permanent.
a. What is Establishment’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
WACC 13.42%
b. How would the market-value balance sheet change if Establishment retired all its debt? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.) New Market-Value Balance Sheet (figures in millions)
Net working capital $
Debt $
Long-term assets
Equity
Value of firm $
Total $
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