In: Finance
Market Value of each capital Structure
Market Value of Debt = $183,412,000 [200,000 Bonds x $917.06 per bond]
Market Value of Preferred Stock = $303,000,000 [3,000,000 shares x $101 per share]
Market Value of Equity = $264,328,000 [9,400,000 shares x $28.12 per share]
Total Market Value = $750,740,000
Price of the Bond
The Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the Face Value/Par Value. The Price of the Bond is normally calculated either by using EXCEL Functions or by using Financial Calculator.
Here, the calculation of the Bond Price using financial calculator is as follows
Variables |
Financial Calculator Keys |
Figures |
Face Value [-$1,000] |
FV |
1,000 |
Coupon Amount [$1,000 x 7%] |
PMT |
70 |
Market Interest Rate or Required Rate of Return [8.25%] |
1/Y |
8.25 |
Time to Maturity [10 Years] |
N |
10 |
Bond Price |
PV |
? |
Here, we need to set the above key variables into the financial calculator to find out the Price of the Bond. After entering the above keys in the financial calculator, we get the Price of the Bond = $917.06
The weight of Debt to be used in the WACC Calculation
Weight of Debt = Market Value of Debt / Total Market Value
= $183,412,000 / $750,740,000
= 0.2443 or
= 24.43%
“Therefore, weight of Debt to be used in the WACC Calculation will be 0.2443 or 24.43%”