Book value versus market value components. Compare Trout Inc. with Salmon Enterp
ID: 2631335 • Letter: B
Question
Book value versus market value components. Compare Trout Inc. with Salmon Enterprises using the balance sheet of Trout and the market data of Salmon for the weights in the weighted average cost of capital.
Trout Inc.
Current Assets: $2,444,444 Current Liabilities: $1,470,435
Long-term Assets: $8,555,556 Long-Term Liabilities: $6,326,083
Total Assets $11,000,000 Owners Equity: $3,203,482
Salmon Enterprises Bonds Outstanding 3,000 selling at $1,029.12Common Stock Outstanding 260,000 selling at $27.39 If the after-tax cost of debt is 10.7% for both companies and the cost of equity is 16.11% which company has the highest WACC?
1) What is the book value adjusted WACC for Trout Inc? __% (Round to two decimal places.)
2) What is the market value adjusted WACC for Salmon Enterprises? __% (Round to two decimal places.)
3) Which company has a higher WACC
Explanation / Answer
Trout Inc. Component Weights,
Debt = $6,326,083) / $9529565= .664
Equity = $3,203,482 / $9529565 = 0.336
Salmon Enterprises Component Weights,
Market Value of Debt = $1029.12