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

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 3MC

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A company had WACC (weighted average cost of capital) equal to 8. % If the company pays off mortgage bonds with an interest rate of 4% and issues an equal amount of new stock considered to be relatively risky by the market, which of the following is true? a. residual income will increase. b. ROI will decrease. c. WACC will increase. d. WACC will decrease.
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…
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