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Suppose Corporation A has a book (face) debt value of $9M, trading at 85% of face...

Suppose Corporation A has a book (face) debt value of $9M, trading at 85% of face value. It also has book equity of $16 million, and 2.88 million shares of common stock trading at $24 per share. What is the weight for for common equity that Corporation A should use in calculating its WACC?

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Expert Solution

Market value of debt = $9 million * 0.85 = $7.65 million

Market value of common stock = 2.88 million shares * $24 = $69.12 million

Total value = $7.65 million + $69.12 million = $76.77 million

Weight for for common equity = Market value of common stock / Total value

Weight for for common equity = $69.12 million / $76.77 million

Weight for for common equity = 0.9004 or 90.04%

jeff jeffy answered 2 years ago
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