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, along-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 6.9%, the cost of preferred stock is at 11.46%, and the cost of equity is at 15.52%. Calculate the WACC using both the book value and the market value approaches with the information in the popup window: DMI Balance Sheet ($ in thousands) Current assets $32,653 Current liabilities $0 Long-term assets $67,347 Long-term liabilities Bonds payable $58,000 Owners' equity Preferred stock $14,000 Common stock $28,000 Total assets $100,000 Total liabilities and owners' equity $100,000 Market Information Debt Preferred Stock Common Stock Outstanding 58,000 140,000 1,120,000 Market Price $961.01 $107.12 $36.07 What is the book value adjusted WACC for DMI? Round to two decimal places.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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, along-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

6.9%,

the cost of preferred stock is at

11.46%,

and the cost of equity is at

15.52%.

Calculate the WACC using both the book value and the market value approaches with the information in the popup window:

DMI Balance Sheet ($ in thousands)
Current assets	$32,653	Current liabilities	$0
Long-term assets	$67,347	Long-term liabilities
		Bonds payable	$58,000
		Owners' equity
		Preferred stock	$14,000
		Common stock	$28,000
Total assets	$100,000	Total liabilities and owners' equity	$100,000

Market Information
	Debt	Preferred Stock	Common Stock
Outstanding	58,000		140,000	1,120,000
Market Price	$961.01		$107.12	$36.07

What is the book value adjusted WACC for DMI?

Round to two decimal places.)

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