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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

Weights used in WACC need to be computed based on market value of debt and equity.

Market value of debt = $9mill * 85% = $7.65 million

Market value of equity = 2.88 million * $24 = $69.12 million

Weight of equity = $69.12/($69.12 + $7.65) = 90.04%

jeff jeffy answered 2 years ago
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