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The CFO of DMI is trying to determine the company's WACC. Brad, a promising...

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Accounting

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 8.4%, the cost of preferred stock is at 12.31%, and the cost of equity is at 16.97%. Calculate the WACC using both the book value and the market value approaches with this information:

image

Which do you think is better?

what is the book value of DMI?

What is the book value adjusted WACC for DMI?

What is the market value of DMI?

What is the market value adjusted WACC for DMI?

Current assets Long-term assets Total assets Market Information Outstanding Market Price DMI Balance Sheet in thousands) $33,959 Current liabilities $70,041 Long-term liabilities Bonds payable Owners' equity Preferred stock Common stock Total liabilities and $104,000 owners' equity Debt Preferred Stock 130,000 64,000 $943.78 $103.15 $0 $64,000 $13,000 $27,000 $104,000 Common Stock 1,080,000 $32.66

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