BBB Inc., a financial service firm, has the following capital structure: Equity

Question

BBB Inc., a financial service firm, has the following capital structure: Equity $101.32 110,000 $3,227,000 16.93% Preferred Stock Debt $199.87$1082.87 Market Price Outstanding units Book value Cost of capital 6,000 $1,138,000 $5,598,000 98% 12.78% Using market value and book value (separately, of course), find the adjusted WACC for BBB Inc. The tax rate is 30% a. What is the book value adjusted WACC for BBB Inc. at a tax rate of 30%D96 (Round to two decimal places.) b What is the market value adjusted WACC for BBB Inc. at a tax rate of 30%? % Round to two decimal places.

Explanation / Answer

a,

book value adjusted WACC=(3227000/(3227000+1138000+5598000))*16.93%+(1138000/(3227000+1138000+5598000))*12.78%+(5598000/(3227000+1138000+5598000))*9.6%*(1-30%)

=10.72%

b.

market value adjusted WACC=((101.32*110000)/(101.32*110000+199.87*6000+1082.87*5598))*16.93%+((199.87*6000)/(101.32*110000+199.87*6000+1082.87*5598))*12.78%+((1082.87*5598)/(101.32*110000+199.87*6000+1082.87*5598))*9.6%*(1-30%)

=13.30%

the above is the answer

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