#12 Book value versus market value components
Extracted text: 12. Book value versus market value components. The CFO of DMI is trying to bdetermine the company's WACC. Brad, a promising MBA, says that the com- pany should use book value to assign the WACC components' percentages. Angela, a long-time employee and experienced financial analyst, says that the should use market value to assign the components’ percentages. company The after-tax cost of debt is at 7%, the cost of preferred stock is at 11%, and the cost of equity is at 14%. Calculate the WACC using both the book value and the market value approaches with the following information. Which do you think is better? Why? f the woll
Extracted text: The Cost of Capital DMI Balance Sheet ($ in thousands) Current assets $ 32,000 Current liabilities Long-term liabilities Bonds payable Long-term assets $ 66,000 brot $ 54,000 Owners' equity Preferred stock $ 12,000 Common stock $ 32,000 Total liabilities and Total assets $98,000 owners'equity $98,000 Market Information Debt Preferred Stock Common Stock Outstanding 54,000 120,000 1,280,000 Market price $1,085 $95.40 $32.16 %24