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2.Determine the Weighted Average Cost of Capital (WACC) (where ROE can be viewed as the Cost of Equity)?
For the Year Ended December 31, 2009
Sales (all on credit) ..................................................................... $ 4,000,000
Cost of Goods Sold...........................................................................3,000,000
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Gross Profit.....................................................................................$ 1,000,000
Selling and Administrative Expenses........................................... 450,000
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Operating Profit ..............................................................................$ 550,000
Interest Expense.............................................................................. 50,000
Extraordinary Loss............................................................................ 200,000
Earnings Before Taxes.....................................................................$ 300,000
Income Taxes (33%)......................................................................... 100,000
Net Income........................................................................................$ 200,000
SAXTON COMPANY
Balance Sheet
As of December 31, 2009
Assets
Cash....................................................................................... $ 30,000
Accounts Receivable........................................................... 350,000
Marketable Securities ........................................................ 50,000
Inventory............................................................................... 370,000
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Total Current Assets............................................................. $ 800,000
Net Plant and Equipment..................................................... 800,000
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Total Assets............................................................................$ 1,600,000
Liabilities and Stockholders' Equity
Accounts Payable....................................................................$ 50,000
Notes Payable.......................................................................... 250,000
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Total Current Liabilities...........................................................$ 300,000
Long Term Liabilities.................................................................. 300,000
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Total Liabilities ..........................................................................$ 600,000
Common Stock............................................................................ 400,000
Retained Earnings....................................................................... 600,000
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Total Stockholders' Equity.......................................................$ 1,000,000
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