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

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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 6.9%, the cost of preferred stock is at 11.46%, and the cost of equity is at 15.52%. Calculate the WACC using both the book value and the market value approaches with the information in the popup window: DMI Balance Sheet ($ in thousands) Current assets $32,653 Current liabilities $0 Long-term assets $67,347 Long-term liabilities Bonds payable $58,000 Owners' equity Preferred stock $14,000 Common stock…
Company A's simple EPS is $1 and diluted EPS is $.50. Company B's simple EPS is $1.5 but his diluted EPS is $.25. What would this tell you about the company? Next, suppose Company A's debt to equity ratio is 2 and Company's B's debt to equity ratio is .5. What would this tell you about the company? Besides profitability, what would the measures about tell you about how the company raises money?
.Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM = 5.25%; and b = 0.70. Based on the CAPM approach, what is the cost of equity?
Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.80; P0 = $32.50; and g = 8.00% (constant). What is the cost of equity from retained earnings based on the DCF approach?
Select one company of the 30 companies that make up the Dow Jones Industrial Average (DJIA). a. Provide a brief history of the company chosen from the 30 companies of the DJIA.b.Describe the Dividend Discount Model (DDM). Using the DDM value the companyc.Provide a brief description of the Residual Income Model. Using the RIM value, the companyd.Describe the Free Cash Flow Model (FCF). Using the FCF value the companye. Describe the P/E ratio for the company and determine the expected price of the company using Earnings, Cash Flow and Salesf.summary of the detailed fundamental analysis for the company, provide a current status of the company and then explain if you would invest in the company at the current price. Explain why you made the investment decision and at what price range you would invest money in this company.
Company ABC is looking to figure out its cost of equity. The company operates in the construction business where, based on a list of comparable firms, the average beta is 0.9. The comparable firms have an average debt-to-equity ratio of 0.5. Company ABC has a debt-to-equity ratio of 0.25 and a 30% tax rate. What is the ABC's Beta? O a. 0.67 O b. 0.9 OC 0.79 O d. 0.25
Ilumina Corp is trying to determine its optimal capital structure. The company’s capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Percent financed with debt (wd) Percent financed with equity (wc) Debt-to-equity ratio (D/S) After-tax cost of debt (%) 0.25 0.75 0.25/0.75 = 0.33 6.9% 0.35 0.65 0.35/0.65 = 0.5385 7.1% 0.50 0.50 0.50/0.50 = 1.00 8.0% The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is 6%. Ilumina estimates that its beta with 10% debt is 1. The company’s tax rate, T, is 40%. On the basis of this information, what is the company’s optimal capital structure, and what is the firm’s cost of capital at this optimal capital structure? (Please show work)
Give typing answer with explanation and conclusion Fama's Llamas has a weighted average cost of capital of 11.5 per cent. The company's cost of equity is 16 per cent, and its cost of debt is 8.5 per cent. The tax rate is 35 per cent. What is Fama's debt–equity ratio?
Kalil, Inc. (a for-profit college), has the following data: average stock return (market rate of return) is 7%; market risk premium is 5%. and b = 0. What is the firm's cost of equity (k) from retained earnings based on the CAPM? 12
Assume that you are a consultant to Morton Inc., and you have been provided with the following data: DO = $1.4; PO = $36; and g = 4.8% (constant). What is the cost of equity from retained earnings based on the DCF approach? O 9.68% O 9.08% O 9.48% O 9.28% O 8.88% 19
You have the following information about Burgundy Basins, a sink manufacturer. Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Market value of debt Book value of equity Cost of equity capital Tax rate a. What is the internal rate of return on the investment? Note: Round your answer to 2 decimal places. Internal rate of return I Weighted-average cost Burgundy is contemplating what for the company is an average-risk investment costing $38 million and promising an annual ATCF of $4.9 million in perpetuity. % b. What is Burgundy's weighted-average cost of capital? Note: Round your answer to 2 decimal places. 20 million % $39 7.5% $350 million 4.4% $ 245 million $ 410 million 11.8% 35%
Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM =5.20%; and b = 0.70. Based on the CAPM approach, what is the cost of equity from retained earnings? O a. 10.00% O b. 8.07% O c. 9.30% O d. 7.74% O e. 6.51%

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