Question: Here is Establishment Industries' market-value balance sheet (figures in $ millions): The debt is yielding 7%, and the cost of equity is 14%. The tax

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

The debt is yielding 7%, and the cost of equity is 14%. The tax rate is 35%. Investors expect this level of debt to be permanent.
a. What is Establishment's WACC?
b. How would the market-value balance sheet change if Establishment retired all its debt?

Net working capital 550 D 800 Long-term assets10 Equity 1,900 $2,700 Value of firm $2,700

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