Problem Walk-Through

Problem 10-9 WACC

The Patrick Company's year-end balance sheet is shown below. Its cost of common equity is 17%, its before-tax cost of debt is 9%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals $1,173. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Patrick's WACC using market value weights. Round your answer to two decimal places.

Assets			Liabilities And Equity
Cash	$ 120		Accounts payable and accruals	$ 10
Accounts receivable	240		Short-term debt	63
Inventories	360		Long-term debt	$1,110
Plant and equipment, net	2,160		Common equity	1,697
Total assets	$2,880		Total liabilities and equity	$2,880

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