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 9.6%, the cost of preferred stock is at 12.81%, and the cost of equity is at16.35%. Calculate the WACC using both the book value and the market value approaches with the information in the popup window: E. Which do you think is better?.....What is the book value adjusted WACC for DMI?% (Round to two decimal places.) DMI Balance Sheet ($ in thousands)Current assets$33,306Current liabilities$0Long-term liabilitiesBonds payableLong-term assets$68,694$57,000Owners' equityPreferred stock$13,000Common stock$32,000Total liabilities andTotal assets$102,000owners' equity$102,000Click on the Icon 9 in order to copy its content into a spreadsheet.Market InformationDebtPreferred StockCommon StockOutstanding57,000130,0001,280,000Market Price$1,074.54$106.33$37.04

WACC =Cost of equity×Weight of equity +After tax cost of debt × Weight of debt +Cost of preferred…

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 9.6%, the cost of preferred stock is at 12.81%, and the cost of equity is at 16.35%. 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? What is the book value adjusted WACC for DMI? O% (Round to two decimal places.)

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 9.6%, the cost of preferred stock is at 12.81%, and the cost of equity is at 16.35%. 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? What is the book value adjusted WACC for DMI? O% (Round to two decimal places.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

You have been asked by your employers to demonstrate your knowledge in business valuation process, by analyzing the value of Best Group Savings and Loans Company (BGSLC). The company paid a dividend of GH¢ 250,000 this year. The current return to shareholders of companies in the same industry as BGSLC is 12%, although it is expected that an additional risk premium of 2% will be applicable to BGSLC, being a smaller and unquoted company. Compute the expected valuation of BGSLC, if: The current level of dividend is expected to continue into the foreseeable future The dividend is expected to grow at a rate 4% par into foreseeable future The dividend is expected to grow at a 3% rate for three years and 2% afterwards
3. Company WACC is 20%. Debt interest rate is 4% and D/ E ratio is 1,6. What is the cost of equity? HOW YOU CALCULATE THIS WITH EXCEL AND USING EXCEL FORMULAS?
Consider the setting of Problem 18. You decided to look for other comparables to reduce estimation error in your cost of capital estimate. You find a second firm, Thurbinar Design, which is also engaged in a similar line of business. Thurbinar has a stock price of $20 per share, with 15 million shares outstanding. It also has $100 million in outstanding debt, with a yield on the debt of 4.5%. Thurbinar’s equity beta is 1.00. (1) Assume Thurbinar’s debt has a beta of zero. Estimate Thurbinar’s unlevered beta. Use the unlevered beta and the CAPM to estimate Thurbinar’s unlevered cost of capital. (2) Estimate Thurbinar’s equity cost of capital using the CAPM. Then assume its debt cost of capital equals its yield, and using these results, estimate Thurbinar’s unlevered cost of capital. (3) Explain the difference between your estimates in part (1) and part (2). (4) You decide to average your results in part (1) and part (2), and then average this result with your estimate from Problem 18.…
2. Concatti Corporation hired your consulting firm to help them estimate the cost of equity. The yield on the firm's bonds is 10.50%, and your firm's economists believe that the cost of equity can be estimated using a risk premium of 4.85% over a firm's own cost of debt. What is an estimate of the firm's cost of equity from retained earnings?
CoffeeCarts has a cost of equity of 15.1%, has an effective cost of debt of 3.7%, and is financed 65% with equity and 35% with debt. What is this firm's WACC?
You are an analyst in the Finance department at a conglomerate, where the CFO believes the cost of equity is 10% and the WACC is 7.5%. A project has been proposed to create a new business line, and your manager asks you to calculate the NPV assuming the project is funded entirely by equity. Should you discount the CF’s using a) 10%, b) 7.5% or c) some other rate? Why?
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earings, new common stock, or both). The firm's tax rate is 24%. Debt The firm can sell for $1000 a 11-year, $1,000-par-value bond paying annual interest at a 12.00% coupon rate. A flotation cost of 4% of the par value is required. Preferred stock 8.50% (annual dividend) preferred stock having a par value of $100 can be sold for $98. An additional fee of $3 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $80 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.25 ten years ago to the $4.43 dividend payment, Do. that the company just recently…
Hello. I'd like the functions in order to calculate the following myself. I am attaching the numbers I have for Ecolab but I am not sure if it contains what I need in order to solve this so if at least I can get the formulas then I can figure it out before-tax and after-tax component cost of debt; (Note: Use 21 % tax rate for your chosen corporation). component cost of preferred stock if the company uses preferred stocks in its capital structure; three approaches (CAPM, DCF, bond-yield-plus-risk-premium) to estimate the component cost of common equity of the firm. Then assign a weight for each method and estimate weighted average cost of equity. Using this average: - Calculate the firm’s weighted average cost of capital (WACC) using market-based capital weights. - Calculate the firm’s weighted average cost of capital (WACC) using book-based capital weights. - Calculate the firm’s weighted average cost of capital (WACC) using optimal capital structure weights Ecolab Inc (NYS:…
CFC is a company that deals with general supplies. The CFO has invited you to a meeting to discuss proposed investment projects for the company. You have been requested to compute the overall cost of capital of the firm as this will be used to evaluate the projects.The following information has been provided to aid in the computation. (i)The company has a cost of equity of 12%, an after-tax cost of debt of 5%, and a cost of preference stock of 10%. (ii) CFC has 10,000 outstanding ordinary shares that are currently trading at Sh.46 per share. (iii) The firm has 5,000 outstanding preference shares issued at a price of Sh.58 a share. (iv) The firm issued 2,000 debentures whose par value is Shs. 105.The current market price is Shs.100. Required: Compute the firm's weighted average cost of capital (WACC).
You have completed a first pass of a pro-forma balance sheet for Farmer Company. This reveals external financing need of $12 million. The pro-forma income statement shows a Net Income of $100 million and traditionally the firm has paid 40% of its earnings in the form of dividends (which is currently reflected in your pro-forma financials). What payout ratio would eliminate the external financing need of the firm?
Chapter 11, Question 6
You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of .4, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Lauryn's asset 1.22 x beta

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS