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:  If the​ after-tax cost of debt is 10.6%, for both companies and the cost of equity is 14.64% which company has the higher​ WACC?

What is the book value adjusted WACC for​ Trout, Inc.?

____%

What is the market value adjusted WACC for Salmon​ Enterprises?

____%

Which company has the higher​ WACC?

A. Salmon Enterprises has a higher WACC at ___ than​ Trout, Inc. with a WACC of ___

B. Trout, Inc. has a higher WACC at ___ than Salmon Enterprises with a WACC of ___

Trout, Inc.
Current​ assets:	​$2,000,000	Current​ liabilities:	​$641,787
​Long-term assets:	​$7,000,000	​Long-term liabilities:	​$5,404,949
Total​ assets:	​$9,000,000	​Owners' equity:	​$2,953,264
Salmon Enterprises
Bonds​ outstanding:  3,000 selling at 928.39
Common stock​ outstanding:  260,000 selling at $30.53

Answer 1