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Suppose Corporation A has a book (face) debt value of $10M, trading at 85% of face...

Suppose Corporation A has a book (face) debt value of $10M, trading at 85% of face value. It also has book equity of $16 million, and 1.78 million shares of common stock trading at $29 per share. What is the weight for debt that Corporation A should use in calculating its WACC?

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Expert Solution

Market value of debt = $10 million * 0.85 = $8.5 million

Market value of common stock = 1.78 million shares * $29 = $51.62 million

Total value = $8.5 million + $51.62 million = $60.12 million

Weight for debt = Market value of debt / Total value

Weight for debt = $8.5 million / $60.12 million

Weight for debt = 0.1414 or 14.14%

jeff jeffy answered 2 years ago
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