12. Book value versus market value components. The CFO of DMI is trying to determine the company's WACC. Brad, a promising MBA, says that the company should use book value to assign the WACC components percentages. Angela, a long-time employee and experienced financial analyst, says the company should use market value to assign the components. The after-tax cost of debt is at 7%, the cost of preferred stock is at 11%, and the cost of equity is at 14%. Calculate the WACC using both the book value and market value approaches with the following information. Which do you think is better? Why? DMI Company Balance Sheet (in thousands) $32,000 $0 Current Assets: Long-Term Assets: $66,000 Current Liabilities: Long-Term Liabilities $54,000 Owner's Equity $12,000 $32,000 Total Assets: $98,000 Total L & OE $98,000 Market Information Debt Preferred Stock Common Stock 54,000 120,000 1,280,000 Outstanding Market Price $1085 $95.40 $32.16 Question: 1. Adjusted WACC based on book valuation is _%. 2. Total liabilities and equities based on market valuation is $_ 3. Adjusted WACC based on market valuation is _%. 4. Which approach is better if the company wishes to issue new stock? Book or Market Bonds Payable Preferred Stock Common Stock