Bolster Foods' (BF) balance sheet shows a total of $25 million long- term debt with a coupon rate of 8.50%. The yield to maturity on this debt is 8.00%, and the debt has a total current market value of $27 million. The balance sheet also shows that the company has 10 million shares of stock, and the stock has a book value per share of $5.00. The current stock price is $20.00 per share, and stockholders' required rate of return, rs, is 12.25%. The company recently decided that its target capital structure should have 35% debt, with the balance being common equity. The tax rate is 40%. Calculate WACCs based on book, market, and target capital structures. What is the sum of these three WACCs?

Question

Quizplus · Accepted Answer

The WACC based on book value is 9.90%, based on market value is 9.93%, and based on target capital structure is 10.94%. The sum of these three WACCs is 30.77%.

Bolster Foods' (BF) Balance Sheet Shows a Total of $25