Book value versus market value components. Compare? Trout, Inc. with Salmon? Enterprises, using the balance sheet of...
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Book value versus market value components.
Compare? Trout, Inc. with Salmon? Enterprises, using the balancesheet of Trout and the market data of Salmon for the weights in theweighted average cost of? capital:??If the? after-tax cost of debtis 7.3?% for both companies and the cost of equity is 13.59?%,which company has the higher? WACC? What is the book adjusted WACCof both companies?
Trout, Inc. Current assets: $1,333,333 Current liabilities:$780,712 Long-term assets: $4,666,667 Long-term liabilities:$3,325,337 Total assets: $6,000,000 Owners' equity: $1,893,951
Salmon Enterprises Bonds outstanding: 3,000 selling at $963.87.Common stock outstanding: 260,000 selling at $22.91
Book value versus market value components.
Compare? Trout, Inc. with Salmon? Enterprises, using the balancesheet of Trout and the market data of Salmon for the weights in theweighted average cost of? capital:??If the? after-tax cost of debtis 7.3?% for both companies and the cost of equity is 13.59?%,which company has the higher? WACC? What is the book adjusted WACCof both companies?
Trout, Inc. Current assets: $1,333,333 Current liabilities:$780,712 Long-term assets: $4,666,667 Long-term liabilities:$3,325,337 Total assets: $6,000,000 Owners' equity: $1,893,951
Salmon Enterprises Bonds outstanding: 3,000 selling at $963.87.Common stock outstanding: 260,000 selling at $22.91
Answer & Explanation Solved by verified expert
| Book value adjusted WACC for Trout | |||||
| WACC = Weight of equity*Cost of equity + Weight of debt*Cost of debt | |||||
| Calculation of weight of equity and debt | |||||
| Book value | Weight | ||||
| Equity | 1893951 | 0.362875358 | 1893951/5219288 | ||
| Debt | 3325337 | 0.637124642 | 3325337/5219288 | ||
| 5219288 | |||||
| Calculation of WACC | |||||
| WACC = (0.1359*0.637)+(0.073*0.363) | |||||
| WACC | 11.31% | ||||
| Book value adjusted WACC for Trout is 11.31% | |||||
| Market value adjusted WACC for Salmon | |||||
| Calculation of weight of equity and debt | |||||
| Market value | |||||
| Equity | 260000*22.91 | 5956600 | 0.673198 | 5956600/8848210 | |
| Debt | 3000*963.87 | 2891610 | 0.326802 | 2891610/8848210 | |
| 8848210 | |||||
| Calculation of WACC | |||||
| WACC | (0.1359*0.673198)+(0.073*0.326802) | ||||
| WACC | 11.53% | ||||
| Market value adjusted WACC for Salmon enterprises is 11.53% | |||||
| The WACC for salmon enterprise is higher than for Trout inc. | |||||
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Book value versus market value components.Compare? Trout, Inc. with Salmon? Enterprises, using the balancesheet of Trout and the market data of Salmon for the weights in theweighted average cost of? capital:??If the? after-tax cost of debtis 7.3?% for both companies and the cost of equity is 13.59?%,which company has the higher? WACC? What is the book adjusted WACCof both companies?Trout, Inc. Current assets: $1,333,333 Current liabilities:$780,712 Long-term assets: $4,666,667 Long-term liabilities:$3,325,337 Total assets: $6,000,000 Owners' equity: $1,893,951Salmon Enterprises Bonds outstanding: 3,000 selling at $963.87.Common stock outstanding: 260,000 selling at $22.91
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