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What should be proportion of common equity financing (Ws) in WACC computations for a firm with...

What should be proportion of common equity financing (Ws) in WACC computations for a firm with $50 million par value in bonds (debt) but these 4 years bonds with coupon rate 3% has a yield to maturity at 7.476%. The firm also has $50 million book value of equity but its stock price is selling at $50 and there are 2 million shares of stock outstanding? Tax rate is 35%.
  • A. 29.8%
  • B. 70.2%
  • C. 60.5%
  • D. 57.5%
  • E. 42.5%

Solutions

Expert Solution

The answer is B)

calc:

Formula for bond price is =PV(rate,nper,pmt,fv)

Where,

rate is periodic YTM,

nper is periods to maturity

pmt is payment per period

fv is redemption amount of bond

jeff jeffy answered 2 years ago
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