Here is Establishment Industries’ market-value balance sheet (Figures in millions): Net working capital $ 630 Debt $ 700 Long-term assets 3,120 Equity 3,050 Value of firm $ 3,750 $ 3,750 The debt is yielding 5.3%, and the cost of equity is 15.7%. The tax rate is 34%. Investors expect this level of debt to be permanent.
a. What is Establishment’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC %
b. How would the market-value balance sheet change if Establishment retired all its debt? (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.) New Market-Value Balance Sheet (figures in millions) Net working capital $ Debt $ Long-term assets Equity Value of firm $ Total $