Textbook Problem

WACC The Patrick Company’s year-end balance sheet is shown below. Its cost of common equity is 16%, its before-tax cost of debt is 13%, and its marginal tax rate is 40%. Assume that the firm’s long-term debt sells at par value. The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals $1,152. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Calculate Patrick’s WACC using market-value weights.

Assets		Liabilities and Equity
Cash	$ 130	Accounts payable and accruals	$ 10
Accounts receivable	240	Short term debt	52
Inventories	360	Long term debt	1,100
Plant and equipment, net	2,160	Common equity	1,1728
Total assets	$2,890	Total liabilities and equity	$2,890