90.2K

Verified Solution

Link Copied!

a. What is the book value adjusted WACC for DMI?

b. What is the market value adjusted WACC for DMI?

c. Which of the two is the preferred choice? Why?

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 7.3%, the cost of preferred stock is at 11.97%, and the cost of equity is at 16.26%. 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? - X Data table What is the book value adjusted WACC for DMI? % (Round to two decimal places.) % $0 S54,000 Click on the icon in order lo copy its conteni inlo a sprcadsheet DMI Balance Sheet ($ in thousands) Current assets $30,367 Current liabilities Long-term assets $62,633 Long-term liabilities Bonds payable Owners' equity Preferred stock Common stock Total liabilities and Total assets $93,000 owners' equity S12.000 S27,000 S93.000 Click on the icon in order to copy its content into a spreadsheet. Market Information Debt Preferred Stock Outstanding 54,000 120,000 Market Price $1,066.82 $100.28 Common Stock 1,080.000 $33.28

Answer & Explanation Solved by verified expert

See Answer