Question

Book value versus market value components

core: 0 of 1 pt "11-12 (similar to) HW Score: 8 of 10 pts Bok valve verster value componente WACC MA c ha WACC A long time What is the b e d WACC for DMI Round to two decimal places) DMI Balance Sheet (5 in thousands) 570,714 Long emates Totallaties and tion Dec or your answer in the answer box and then cloche

PLEASE ANSWER ALL: QUESTIONS

1. what is the book value adjusted WACC for DMI?

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

3. Which do you think is better (A or B)

a.) The preferred choice is book value which is his original price of the debt or equity to be in the capital markets the price I would investors currently buy or sell stocks and bonds. Book value represents the true capital structure of the firm based on the amount of capital originally invested in the firm.

b.) they prefer twice is the market value which is a current price of the debt or equity in the capital market the price at which investors currently buy or sell stock or bond market values are a better reputation of a company's current capital structure which would be relevant for me the new capital.

Answer 1

1]

WACC = (weight of debt * after cost of debt) + (weight of preferred stock * cost of preferred stock) + (weight of common stock * cost of common stock)

weight of debt = book value of debt / total book value = 65000 / 105000

weight of preferred stock = book value of preferred stock / total book value = 13000 / 105000

weight of common stock = book value of common stock / total book value = 27000 / 105000

WACC = 11.58%

А 1 2 3 4 Debt Pref. Stock Common Stock B C D Book Value Weight Cost 65,000.00 0.619 8.90% 13,000.00 0.124 13.56% 27,000.00 0.257 17.09% 105,000.00 11.58%

2 Debt 3 Pref. Stock. 4 Common Stock Book Value 65000 13000 27000 =SUM(B2:34) Weight =B2/$B$5 =B3/$B$5 =B4/$B$5 Cost 0.089 0.1356 0.1709 =SUMPRODUCT(C2:04,02:04) 5

2]

market value of debt = bonds outstanding * market price per bond

market value of preferred stock = shares outstanding * market price per share

market value of common stock = shares outstanding * market price per share

weight of debt = market value of debt / total market value

weight of preferred stock = market value of preferred stock / total market value

weight of common stock = market value of common stock / total market value

WACC = 11.99%

10 Debt 11 Pref. Stock 12 Common Stock B Market Value 70,058,300.00 14,266,200.00 37,940,400.00 122,264,900.00 C D Weight Cost 0.573 8.90% 0.117 13.56% 0.310 17.09% 11.99%

9 10 Debt 11 Pref. Stock. 12 Common Stock 13 в Market Value =65000*1077.82 =130000*109.74 =1080000*35.13 =SUM(B10:B12) с Weight =B10/$B$13 =B11/$B$13 =B12/$B$13 Cost 0.089 0.1356 0.1709 =SUMPRODUCT(C10:C12,010:012)

3]

The answer is B - market value adjusted weights are better because the price at which investors currently buy or sell stocks or bonds better reflect the company's current capital structure.