FINC2340 ln-Class Exercises - Ch 14 12. Book Value versus Market Value (L03) Tempest Manufacturing has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. Tempest Mmuf'mll'ins also has two bond issues outstanding. The rst bond issue has a face value of $70 million, an 7 percent coupon, and sells for 97 percent of par. The second issue has a face value of $50 million, has an 8 percent coupon, and sells for 108 percent of par. The rst issue matures in 21 years, the second in 6 years. What are Tempest's capital structure weights on a book value basis? What are Tempest's capital structure weights on a market value basis? Which are more relevant, the book or market value weights? Why? Calculating the WACC (L03) In Problem 12, suppose the most recent dividend was $4.10 and the dividend growth rate is 6 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Assume the par value of each bond is $1,000. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company's WACC? Answers 12 a) .3182 and .6818; b) .8273 and .1727 13 10.66%