Wacc based on market value weights, Finance Basics

Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $22.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate.

What is the WACC based on the CFO's preference (i.e., market value weights)? What is the WACC based on the president's preference (book value weights)?

WACC Based on Market Value Weights = ____________________.

WACC Based on Book Value Weights = ____________________.



Posted Date: 4/1/2013 3:39:01 AM | Location : United States

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