Question

The WACC calculation is based on :

1) The book value of all sources of long-term capital

2) The book value of debt and the market value of all other sources of capital

3) The market value of equity only.

4) The market values of all sources of long-term capital

5) The book values of debt and equity only

Answer #1

Answer is 4) Market value of all sources of long-term capital

Weighted average cost of capital is calculated based on cost of capital X Weightage. In considering the weights market value of all sources of long term capital should be considered. Only if market value is not available book value should be considered. Market value is the value which is available in open market like bond quotes and stock exchange prices. Market value represents realistic cost of capital and hence it is widely preferred

Acme Manufacturing reports the following capital structure:
long-term debt of $200; long-term leases of $300; convertible debt
of $100; preferred stock $60; and common equity of $400. In its
footnotes the company also reports $40 of stock options owned by
its employees. Further research indicates that the market value of
the long-term debt is 99% of its book value, the market value of
the convertible debt is 109% of its book value (75% of this debt is
debt-related with the...

LIS Company has $50 million in long-term debt, $75 million in
shareholder’s equity [both figures are market value basis]. The
cost of equity is 14%, cost of long-term debt is 12% and the tax
rate is 25%. What is the weighted average cost of capital [WACC]
for LIS?
LIS Company has a pretax income of $12.5 million. What
is the value of the company based on correct calculation of
#1?

For the most recent fiscal year, book value of long-term debt at
Schlumberger was $13633 million. The market value of this long-term
debt is approximately equal to its book value. Schlumberger’s share
price currently is $46.28. The company has 1,000 million shares
outstanding.
Managers at Schlumberger estimate that the yield to maturity on
any new bonds issued by the company will be 10.52%. Schlumberger’s
marginal tax rate would be 35%.
Schlumberger’s beta is 0.88. Suppose that the expected return on...

For the most recent fiscal year, book value of long-term debt at
Schlumberger was $11,447 million. The market value of this
long-term debt is approximately equal to its book value.
Schlumberger’s share price currently is $47.14. The company has
1,000 million shares outstanding. Managers at Schlumberger estimate
that the yield to maturity on any new bonds issued by the company
will be 13.91%. Schlumberger’s marginal tax rate would be 35%.
Schlumberger’s beta is 0.75. Suppose that the expected return on...

For the most recent fiscal year, book value of long-term debt at
Schlumberger was $10,184 million. The market value of this
long-term debt is approximately equal to its book value.
Schlumberger’s share price currently is $58.92. The company has
1,000 million shares outstanding.
Managers at Schlumberger estimate that the yield to maturity on
any new bonds issued by the company will be 8.69%. Schlumberger’s
marginal tax rate would be 35%.
Schlumberger’s beta is 0.76. Suppose that the expected return on...

LIS Company has $60 million in long-term debt, $85 million in
shareholder’s equity [both figures are market value basis]. The
cost of equity is 13%, cost of long-term debt is 8.5% and the tax
rate is 18%. (a) What is the weighted average cost of capital
[WACC] for LIS? (b)LIS Company has a pretax income of $13.5
million. What is the value of the company based on calculation
(a)

Here are book- and market-value balance sheets of the United
Frypan Company: Book-Value Balance Sheet Net working capital $ 50
Long-term assets 50 Total:100 Equity $30 Debt $70 Total:100
Market-Value Balance Sheet Net working capital $ 50 Long-term
assets 200 Total:250 Equity $180 Debt $70 Total: 250 Assume that
MM’s theory holds except for taxes. There is no growth, and the $70
of debt is expected to be permanent. Assume a 32% corporate tax
rate. a. How much of the...

1. As of today, McCormick's market capitalization (E) is
$14,237,510,000. Market value of equity (E), also known as market
cap, is calculated using the following equation: market cap = share
price x shares outstanding.
2. McCormick's book value of debt is $3,237,150,000. Book value
of debt (D) is calculated as follows: book value of debt = last
two-year average of current portion of long-term debt + last
two-year average of long-term debt & capital lease
obligation.
3. Cost of Equity...

The capital structure of company KL is given below:
Sources of
capital Book value ($ 000)
L.T.Debts
60,000
Preferred stock
10,000
Common stock
20,000
Reserves(re)
40,000
Total
capital
130,000
The interest rate charged to the long term debt is 10%. Face
value of company’s common stock is $1 per share and currently are
trading for $8 and dividend for common stock is $1.2...

Book Co. has 1.4 million shares of common equity with a par?
(book) value of $ 1.35?, retained earnings of $ 29.9 ?million, and
its shares have a market value of $ 50.41 per share. It also has
debt with a par value of $ 18.3 million that is trading at 104 % of
par.
a. What is the market value of its? equity?
The market value of the equity is ?$ million. ?(Round to two
decimal? places.)
b. What...

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