Question

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

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

Cash and marketable securities 3,500 Short-term debt 77,600
Accounts receivable 122,000 Accounts payable 64,000
Inventory 127,000 Current liabilities 141,600
Current assets 252,500
Property, plant, and equipment 214,000 Long-term debt 210,600
Deferred taxes 47,000
Other assets 87,000 Shareholders' equity 248,300
Total 600,500 Total 600,500


The debt has just been refinanced at an interest rate of 8.50% (short term) and 10.50% (long term). The expected rate of return on the company's shares is 17.50%. There are 7.66 million shares outstanding, and the shares are trading at €36. The tax rate is 25%.

Calculate this company's weighed-average cost of capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Homework Answers

Answer #1

Short term debt = 77,600
Long term debt = 210,600
Shareholder's equity = Number of shares * share price
= 7,660,000 * 36 = 275,760 (in thousand)

Total = 77,600 + 210,600 + 275,760 = $563,960

WACC = (Cost of short term debt * (1 - tax rate) * weight of short term debt) + (Cost of long term debt * (1 - tax rate) * weight of long term debt) + (cost of equity * weight of equity)
= (8.50% * (1 - 0.25) * (77,600 / 563,960)) + (10.50% * (1 - 0.25) * (210,600 / 563,960)) + (17.50% * (275,760 / 563,960))
= 0.8772% + 2.9408% + 8.5570%
= 12.37%

WACC = 12.37%

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