Here is Establishment Industries’ market-value balance sheet (Figures in millions)

| January 30, 2017

Question
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Here is Establishment Industries’ market-value balance sheet (Figures in millions):

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Net working capital

$

700

Debt

$

1,080

Long-term assets

2,600

Equity

2,220

Value of firm

$

3,300

$

3,300

The debt is yielding 6.4%, and the cost of equity is 14.6%. The tax rate is 32%. Investors expect this level of debt to be permanent.

What is Establishment’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

WACC?

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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