Book Co. has 1.7 million shares of common equity with a par (book) value of $1.45, retained earnings of $30.1 million, and its shares have a market value of $48.59 per share.

Book Co. has 1.7 million shares of common equity with a par (book) value of $1.45, retained earnings of $30.1 million, and its shares have a market value of $48.59 per share. It also has a debt with a par value of $21.1 million that is trading at 101% of par.
a. What is the market value of its equity?
b. What is the market value of its debt?
c. What weights should it use in computing its WACC?

Expert Solution

Market value of equity = Number of shares*Market value per share

= 1.7 million*48.59

= $82.603 million

b. Market value of debt = 21.1 million*101% = $21.311 million

c. Market value weights should be used

Equity = 82.603/(82.603+21.311)

= 79.49%

Debt = 20.51%

jeff jeffy answered 2 years ago

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