10-9 WACC. The Patrick Company's cost of common equity is 16%, its before-tax cost of debt is 13%, and its marginal tax rate is 40%. The stock sells at book value. Using the following balance sheet, calculate Patrick's WACC.
Assets Liabilities and Equity
Cash $ 120
Accounts receivable 240
Inventories 360 Long term debt $ 1,152
Plant and equipment, net 2,160 Common equity 1,728
Total assets 2,880 Total liabilities and equity 2,880

WACC = wdrd(1 – T) + wcrs = 0.4(0.13)(0.6) + 0.6(0.16)
= 0.0312 + 0.0960 = 12.72%.