A table below shows a simplified balance sheet for Randy Co. The debt has just been refinanced

Fantastic news! We've Found the answer you've been seeking!

Question:

A table below shows a simplified balance sheet for Randy Co. The debt has just been refinanced at an interest rate of 6% (short term) and 8% (long term). The expected rate of return on the company's shares is 15%. The tax rate is 25%.

Cash and marketable securities

1,500
Account receivable
120.000
Inventory
125,000

Property. plant and equipment

212.000

Deterred taxes
45.000
Other assets
89,000

Total
592.500
---------------------------

Short term debt
75,600

Account payable

62.000

Current liabilities
137,600

Long term debt
208.600
Shareholders' equity

246.300

Total
592.500

How will Randy's WACC and cost of equity change if it issues €50 million in new equity and uses the proceeds to retire long-term debt? Use three three-step procedures