Question

: . If the after-tax cost of 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: debt is 7.6% for both companies and the cost of equity is 14.06%, which company has the higher WACC? What is the book value adjusted WACC for Trout, Inc.? % (Round to two decimal places.) Data Table - X Click on the Icone in order to copy its content into a spreadsheet. Trout, Inc. Current assets: $2,444,444 Current liabilities: Long-term assets: $8,555,556 Long-term liabilities: Total assets: $11,000,000 Owners' equity: $568,090 $6,999,300 $3,432,610 Salmon Enterprises Bonds outstanding: 3,000 selling at $928.72 Common stock outstanding: 260,000 selling at $29.72

Answer 1

X V A B fc =+C2/$C$6 C D Market value WACC (Cost Market value capital structure % Weights) | $ 3,432,610 0.3290 4.63% 1 Cost % 14.06% 2 Cost of equity 3 4 Debt (After tax cost) 7.6% $ 6,999,300 0.6710 5.10% Total $ 10,431,910 1.0000 8 Trout, Inc - WACC 9.73% Cost % 14.06% Market value WACC (Cost capital structure | %xWeights) 0.7350 10.33% Market value $ 7,727,200 =260000*29.72 11 Cost of equity 12 7.6% $ 0.2650 2.01% 2,786,160 =3000*928.72 13 14 Debt (After tax cost) 15 16 17 18 Total $ 10,513,360 1.0000 19 Salmon Enterprises - WACC 12.35% 20 21 Salmon Enterprises has higher WACC

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