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The following are balance sheets for the Genatron Manufacturing Corporation for the years 2010 and 2011:
9. The following are balance sheets for the Genatron ManufacturingCorporation for the years 2010 and 2011:BALANCE SHEET 2010 2011Cash $50,000 $40,000Accounts receivable 200,000 260,000Inventory 450,000 500,000Total current assets 700,000 800,000Fixed assets (net) 300,000 400,000Total assets $1,000,000 $1,200,000Bank loan, 10% $ 90,000 $ 90,000Accounts payable 130,000 170,000Accruals 50,000 70,000Total current liabilities $270,000 $330,000Long-term debt, 12% 300,000 400,000Common stock, $10 par 300,000 300,000Capital surplus 50,000 50,000Retained earnings 80,000 120,000Total liabilities and equity $1,000,000 $1,200,000a. Calculate the weighted average cost of capital based on bookvalue weights. Assume an after-tax cost of new debt of 8.63percent and a cost of common equity of 16.5 percent.b. The current market value of Genatron’s long-term debt is$350,000. The common stock price is $20 per share and thereare 30,000 shares outstanding. Calculate the WACC usingmarket value weights and the component capital costs in (a).c. Recalculate the WACC based on both book value and marketvalue weights assuming that the before-tax cost of debt will be18 percent, the company is in the 40 percent income tax bracket,and the after-tax cost of common equity capital is 21 percent.
