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Book Value versus Market Value for WACC

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I was able to calculate part a, book value, but cannot figure out part b, market value. Please help. Also, do you have any advice for the answer to part c? *** See attached spreadsheet.


Filer Manufacturing has 8.5 million shares of common stock outstanding. The current share price is $55, and the book value per share is $4. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $74 million, a 6 percent coupon, and sells for 90 percent of par. The second issue has a face value of $48.45 million, a 5.3 percent coupon, and sells for 92.6 percent of par. The first issue matures in 11 years, the second in 5 years. (Round answers to 4 decimal places.)

a. On a book value basis, Filer's capital structure weights, E/V and D/V, are_______ and________ , respectively.

b. On a market value basis, Filer's capital structure weights, E/V and D/V, are _______ and _________, respectively.

c. Are the book value or market value weights more relevant. Why?

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Solution Preview

a. .2173 and .7827

b. .8075 and .1925

c. Market value weights are ...

Solution Summary

This compares the Book Value versus Market Value for WACC

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Weighted Average Cost of Capital Case Study

Please see attached problem...

Prepare responses to the questions posed by the "What's on the Web?" exercises 12.1, 12.2 (in 12.2 you can find the beta for Dell by going to the web site yahoo.finance.com under Stock Price History), 12.3 (for simplicity assume that the company's long-term debt consists of $200 million in long term bonds and $300 million in debentures, assume the book value and market value of the Dell debentures are the same and that the coupon rate is also the yield to maturity). You can figure out the market value of the $200 million Dell bonds by multiplying the book value by the Price column value found in www.bondsonline.com and 12.4 found at the end of Chapter 12 of the text. Your end product of these exercises will be the Dell Computer's WACC. Include exhibits that show all of the calculations used to calculate Dell's WACC.

b. Describe the implications of WACC in relation to Dell's goal of shareholder wealth maximization. Include a brief discussion of how internal and external factors can impact the organization's WACC.

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