ICS plans to expand their operations as stated in Problem - and are considering taking the loan - however, they have a few investors that are interested in lending money for this venture.
They need a total of $775,000, and if they lend the money today, ICS will repay it, with interest, at the end of the year.
Company A agrees to lend $300,000 and they require 5% interest, Company B will lend $200,000 at 6% interest, and Company C will loan the balance but they won't settle for less than 10% interest.
What is the weighted average cost of this capital (WACC)?
From Problem
| YEAR |
INTEREST PAYMENT (a)=(d)*5% |
PRINCIPAL PAYMENT (b)=(c)-(a) |
YEARLY PAYMENT [c] |
LOAN AMOUNT (d) |
BALANCE e= (d)- (b) |
| 1 |
$ 38,750 |
$ 179,810 |
$ 218,560 |
$ 775,000 |
$ 595,190 |
| 2 |
$ 29,760 |
$ 188,800 |
$ 218,560 |
$ 595,190 |
$ 406,390 |
| 3 |
$ 20,320 |
$ 198,240 |
$ 218,560 |
$ 406,390 |
$ 208,150 |
| 4 |
$ 10,408 |
$ 208,152 |
$ 218,560 |
$ 208,150
|
$ 0
|
|
Balance Sheet of ICS Manufacturing Company |
|
|
| Assets |
Amount $ |
Liabilities |
|
|
Amount $ |
| Cash |
$ 2,825,000 |
Accounts Payable |
$ 5,825,000 |
| Accounts Receivable (2,715,000*115%) |
$ 3,122,250 |
Other Current Liabilities |
$ 3,365,000 |
| Inventories (1,514,000*135%) |
$ 2,043,900 |
|
|
| Total Current Assets |
$ 7,991,150 |
Total Current Liabilities |
$ 9,190,000 |
|
|
|
|
| Long-Term Assets |
|
Long-Term Liabilities |
|
| P, P&E (12,745,000/2,000,000) |
$ 14,745,000 |
Long-Term Debt (1,225,000/$2,000,000) |
$ 3,225,000 |
| Goodwill |
$ 1,205,000 |
Other Long-Term Dent (2,230,000+1,137,150) |
$ 3,367,150 |
| Intangible Assets |
$ 5,275,000 |
Total Long-Term Liabilities |
$ 6,592,150 |
| Total Long Term Assets |
$ 21,225,000 |
|
|
|
|
Owners Equity |
|
|
|
common Stock |
$ 6,425,000 |
|
|
Retained Earnings |
$ 7,009,000 |
|
|
Total Owner's Equity |
$ 13,434,000 |
| Total Assets: |
$ 29,216,150 |
|
$ 29,216,150 |