Question
In: Finance
Assume JUP has debt with a book value of $23 ?million, trading at? 120% of par...
Assume JUP has debt with a book value of $23 ?million, trading at? 120% of par value. The firm has book equity of $27 ?million, and 2 million shares trading at $18 per share. What weights should JUP use in calculating its? WACC?
Solutions
Expert Solution
| CALCULATION OF THE WEIGHT OF DEBT AND EQUITY | ||
| Market value of the debt = $ 23 X 120% = | $ 27.60 | |
| Market value of the Equity = (2 million Shares X $ 18) = | $ 36.00 | |
| total market value of the Capital = | $ 63.60 | |
| Weight of Debt = $ 27.60 / $ 63.60 = | 0.4340 | Or 43.40% |
| Weight of Equity = $ 36.00 / $ 63.60 = | 0.5660 | Or 56.60% |
| Answer = Weight of Debt = 43.40% and Weight of Equity = 56.60% | ||
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