The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in thousands) is as follows: 

Cash and marketable Short-term debt 2,300 76,400 securities Accounts payable Accounts receivable 120,800 62,800 € 139,200 Inventory Current liabilities 125,800 Current assets € 248,900 Property, plant, and equipment Deferred taxes Long-term debt 212,800 209,400 45,800 88,200 Shareholders' equity Other assets 247,100 € 595,700 € 595,700 Total Total 

The debt has an interest rate of 4.00% (short term) and 6.00% (long term). The expected rate of return on the company's shares is 13.00%. There are 7.54 million shares outstanding, and the shares are trading at €54. The tax rate is 25%. Assume the company issues €50 million in new equity and uses the proceeds to retire long-term debt. Also assume the company's borrowing rates are unchanged and the short-term debt is permanent. Use the three-step procedure. 

a. Calculate the cost of equity after the capital restructuring. 

b. Calculate the WACC after the capital restructuring.

 

Transcribed Image Text:

Cash and marketable 2,300 Short-term debt € 76,400 securities Accounts receivable 120,800 125,800 € 248,900 Accounts payable Current liabilities 62,800 € 139,200 Inventory Current assets Property, plant, and equipment Deferred taxes 212,800 Long-term debt 209,400 45,800 88,200 Other assets Shareholders' equity 247,100 € 595, 700 Total € 595,700 Total Cash and marketable 2,300 Short-term debt € 76,400 securities Accounts receivable 120,800 125,800 € 248,900 Accounts payable Current liabilities 62,800 € 139,200 Inventory Current assets Property, plant, and equipment Deferred taxes 212,800 Long-term debt 209,400 45,800 88,200 Other assets Shareholders' equity 247,100 € 595, 700 Total € 595,700 Total

Answer rating: 100% (QA)

Answer Longterm debt 209400 3396 600 Equity 407160 ... View the full answer