QUESTIONS TO ANSWER: PLEASE ANSWER ALL

1. What is the book value adjusted WACC for DMI?

2. What is the market value adjusted WACC for DMI?

3. Which do you think is better? (A or B)

A. The preferred choice is book value, which uses the original price of the debt or equity in the capital markets, the price at which investors currently buy or sell stocks and bonds. Book value represents the true capital structure of the firm based on the amount of capital originally invested in the firm.

B. The preferred choice is market value, which uses the current price of the debt or equity in the capital markets, the price at which investors currently buy or sell stocks and bonds. Market values are a better representation of a company's current capital structure, which would be relevant for raising new capital.

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 11.6%, the cost of preferred stock is at 14.87%, and the cost of equity is at 20.24%. 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? i Data Table % (Round to two decimal places.) $0 Click on the Icon in order to copy its content into a spreadsheet. DMI Balance Sheet ($ in thousands) Current assets $31,020 Current liabilities Long-term assets $63,980 Long-term liabilities Bonds payable Owners' equity Preferred stock Common stock Total liabilities and Total assets $95,000 owners' equity $55,000 $13,000 $27,000 $95,000 Click on the Icon in order to copy its content into a spreadsheet. Market Information Debt Preferred Stock Outstanding 55,000 130,000 Market Price $917.47 $104.73 Common Stock 1,080,000 $34.17