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Danny Market issues only common stock and coupon bonds. The firm has a debt-equity ratio of...

Danny Market issues only common stock and coupon bonds. The firm has a debt-equity ratio of .48. The cost of equity is 9 percent and the pre-tax cost of debt is 7.5 percent. The tax rate is 34 percent. What is the capital structure weight of the firm’s debt?

A. 21.40%

B. 48.00%

C. 28.09%

D. 32.43%

E. 37.14%

Solutions

Expert Solution

Dear student thank-you for using Chegg.

Please find the answer below.

Statement showing computation:

Debt equity ratio= 0.48

Debt= 0.48

Equity= 1

Total value= 0.48+1= 1.48

Weight of debt= Value of debt/total value

Weight of debt= 0.48/1.48= 0.3243

So correct answer is D) 32.43%

jeff jeffy answered 2 years ago
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