Question

MV Corporation has debt with market value of $98 ​million, common equity with a book value of $105 ​million, and preferred stock worth $21 million outstanding. Its common equity trades at $55 per​ share, and the firm has 6.5 million shares outstanding. What weights should MV Corporation use in its​ WACC?

The debt weight for the WACC calculation is nothing​ _____%. ​(Round to two decimal​ places.)

Answer 1

Market value of debt= $98 million

Market value of equity= $55*6,500,000= $357,500,000

Market value of preference shares= $21 million

Total firm capital= $98 million + $357.50 million + $21 million

                                 = $476.50 million.

Weight of debt in the capital structure= $98 million/ 476.50 million

                                                                          = 0.2057*100

                                                                          = 20.57%

Weight of equity in the capital structure= $357.50 million/ $476.50 million

                                                                             = 0.7503

                                                                             = 75.03%

Weight of preference shares in the capital structure= $21 million/ $476.50 million

                                                                                                    = 0.0441*100

                                                                                                    = 4.41%

In case of any query, kindly comment on the solution.