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Suppose Corporation A has a book (face) debt value of $12M, trading at 77% of face...

Suppose Corporation A has a book (face) debt value of $12M, trading at 77% of face value. It also has book equity of $20 million, and 1.81 million shares of common stock trading at $21 per share. What is the weight for debt that Corporation A should use in calculating its WACC?

Solutions

Expert Solution

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

Market value of debt = $12mill * 77% = $9.24 million

Market value of equity = 1.81 million * $21 = $38.01 million

Weight of equity = $9.24/($38.01 + $9.24) = 19.56%

jeff jeffy answered 2 years ago
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