Parke Inc. has the following abridged balance sheet: Current assets $ 3,600 Debt
ID: 2685422 • Letter: P
Question
Parke Inc. has the following abridged balance sheet:
Current assets $ 3,600 Debt $ 5,200
(---- space---------) Preferred stock $ 600
Fixed assets $ 6,400 Common equity $ 4,200
---------------------- -----------------------
Total assets $10,000 Total liabilities and equity $10,000
The market value of Parke's debt, preferred stock and common equity equals its book value. Parke's cost of debt is 9.0%, its cost of preferred stock is 7.7%, and its cost of common equity is 15.2%. If Parke's tax rates is 40%, what is the firm's WACC?
Explanation / Answer
WACC=[ (600/10000x7.7)+(4200/10000x15.2)+(5200/10000x9(1-.4)]= 9.654%