Book value versus market value components. The CFO of DMI is trying to determine the company's WACC. Brad, a promising MBA, says that the company should use book value to assign the WACC components' percentages. Angela, a long-time employee and experienced financial analyst, says that the company should use market value to assign the components' percentages. The after-tax cost of debt is at 8.2%, the cost of preferred stock is at 12.98%, and the cost of equity is at 16.96%. Calculate the WACC using both the book value and the market value approaches with the information in the popup window: . Which do you think is better? Data Table What is the book value adjusted WACC for DMI? % (Round to two decimal places.) Click on the Icon P in order to copy its content into a spreadsheet. DMI Balance Sheet ($ in thousands) Current assets $33,306 Current liabilities $0 Long-term liabilities Bonds payable Long-term assets $68,694 $62,000 Owners' equity Preferred stock $13,000 Common stock $27,000 Total liabilities and Total assets $102,000 owners' equity $102,000
Book value versus market value components. The CFO of DMI is trying to determine the company's WACC. Brad, a promising MBA, says that the company should use book value to assign the WACC components' percentages. Angela, a long-time employee and experienced financial analyst, says that the company should use market value to assign the components' percentages. The after-tax cost of debt is at 8.2%, the cost of preferred stock is at 12.98%, and the cost of equity is at 16.96%. Calculate the WACC using both the book value and the market value approaches with the information in the popup window: . Which do you think is better? Data Table What is the book value adjusted WACC for DMI? % (Round to two decimal places.) Click on the Icon P in order to copy its content into a spreadsheet. DMI Balance Sheet ($ in thousands) Current assets $33,306 Current liabilities $0 Long-term liabilities Bonds payable Long-term assets $68,694 $62,000 Owners' equity Preferred stock $13,000 Common stock $27,000 Total liabilities and Total assets $102,000 owners' equity $102,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Chapter 11, Question 6
Transcribed Image Text:Book value versus market value components. The CFO of DMI is trying to determine the company's WACC. Brad, a promising MBA, says that the company should
use book value to assign the WACC components' percentages. Angela, a long-time employee and experienced financial analyst, says that the company should use
market value to assign the components' percentages. The after-tax cost of debt is at 8.2%, the cost of preferred stock is at 12.98%, and the cost of equity is at
16.96%. Calculate the WACC using both the book value and the market value approaches with the information in the popup window: . Which do you think is
better?
Data Table
What is the book value adjusted WACC for DMI?
% (Round to two decimal places.)
Click on the Icon e in order to copy its content into a spreadsheet.
DMI Balance Sheet ($ in thousands)
Current assets
$33,306
Current liabilities
$0
Long-term liabilities
Bonds payable
Long-term assets
$68,694
$62,000
Owners' equity
Preferred stock
$13,000
Common stock
$27,000
Total liabilities and
Total assets
$102,000
owners' equity
$102,000
Click on the Icon 9 in order to copy its content into a spreadsheet.
Market Information
Debt
Preferred Stock
Common Stock
Outstanding
Market Price
62,000
130,000
1,080,000
$34.33
Enter your answer in the answer box and then c
$915.84
$105.96
O narts
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