Question

Book value versus market value components. Compare Trout, Inc. with Salmon Enterprises, using the balance sheet of Trout and the market data of Salmon for the weights in the weighted average cost of capital: EIf the after-tax cost of debt is 8.6% for both companies and the cost of equity is 12.82%, which company has the higher WACC? What is the book value adjusted WACC for Trout, Inc.?

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Calibri Dr General -11AA = = = D- DA Wrap Text Merge Merge & Center - Center BI U SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Font E Copy Paste Format Painter Clipboard JL32 JE Alignment Number Cells JE JG H I J K L JM N O P Q 32 WACC TROUT 33 34 35 SOURCE DEBT А AMOUNT 7333565 3477410 10810975 в WEIGHT 67.83% 32.17% CB*C COC (%) WEIGHTED COST OF EACH SOURCE OF CAPITAL 8.60% 5.83% 12.82% 4.12% 36 COMMON EQUITY WACC = 9.96% ANS 1 <--------- BOOK VALUE ADJUSTED WACC 37 38 39 40 41 42 WACC SALMON B*C 43 SOURCE DEBT COMMON EQUITY NUMBER 3000 260000 A B C PRICE VALUE WEIGHT COC (%) WEIGHTED COST OF EACH SOURCE OF CAPITAL 901.48 2704440.00 25.93% 8.60% 2.23% 29.71 7724600.00 74.07% 12.82% 9.50% 10429040.00 44 45 46 47 WACC = 11.73% ANS 2 <--------- MARKET VALUE ADJUSTED WACC 48 49 ANS :SALMON HAS HIGHER WACC AT 11.73% THAN TROUT WITH A WACC OF 9.96% 50 M KE CAPM UTILITY, SHARPE, beta convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean YIELD bond portfolio cap stru WACC RESI el Rea ferences: CF493 BOJ 130% - O- DOR . * 10 ENG 12-11-2019 K