The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in € thousands) is as follows: € 76,500 Cash and marketable securities Short-term debt € 2,400 120,900 Accounts payable Accounts receivable 62,900 € 139,400 Current liabilities Inventory 125,900 € 249, 200 Current assets Property, plant, and equipment Deferred taxes 212,900 45,900 88,100 Long-term debt 209,500 Shareholders' equity Other assets 247, 200 € 596,100 € 596,100 Total Total The debt has an interest rate of 3.75% (short term) and 5.75% (long term). The expected rate of return on the company's shares is 12.75%. There are 7.55 million shares outstanding, and the shares are trading at €55. 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. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Cost of equity b. Calculate the WACC after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weighed-average cost of capital
The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in € thousands) is as follows: € 76,500 Cash and marketable securities Short-term debt € 2,400 120,900 Accounts payable Accounts receivable 62,900 € 139,400 Current liabilities Inventory 125,900 € 249, 200 Current assets Property, plant, and equipment Deferred taxes 212,900 45,900 88,100 Long-term debt 209,500 Shareholders' equity Other assets 247, 200 € 596,100 € 596,100 Total Total The debt has an interest rate of 3.75% (short term) and 5.75% (long term). The expected rate of return on the company's shares is 12.75%. There are 7.55 million shares outstanding, and the shares are trading at €55. 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. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Cost of equity b. Calculate the WACC after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weighed-average cost of capital
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter13: Marketable Securities And Derivatives
Section: Chapter Questions
Problem 27P
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Transcribed Image Text:The simplified balance sheet for the Dutch manufacturer Rensselaer Felt (figures in € thousands) is as follows:
€ 76,500
Cash and marketable securities
Short-term debt
€
2,400
120,900
Accounts payable
Accounts receivable
62,900
€ 139,400
Current liabilities
Inventory
125,900
€ 249, 200
Current assets
Property, plant, and equipment
Deferred taxes
212,900
45,900
88,100
Long-term debt
209,500
Shareholders' equity
Other assets
247, 200
€ 596,100
€ 596,100
Total
Total
The debt has an interest rate of 3.75% (short term) and 5.75% (long term). The expected rate of return on the company's shares is
12.75%. There are 7.55 million shares outstanding, and the shares are trading at €55. 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. (Do not round intermediate calculations. Enter your answer as a
percent rounded to 2 decimal places.)
Cost of equity
b. Calculate the WACC after the capital restructuring. (Do not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places.)
Weighed-average cost of capital
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