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MV Corporation has debt with market value of $101 ​million, common equity with a book value...

MV Corporation has debt with market value of $101 ​million, common equity with a book value of $95 million, and preferred stock worth $22 million outstanding. Its common equity trades at $50 per​ share, and the firm has 5.8 million shares outstanding. What weights should MV Corporation use in its​ WACC?

The debt weight for the WACC calculation is _____. ​(Round to two decimal​ places.)

The preferred stock weight for the WACC calculation is _______​(Round to two decimal​ places.)

The common equity weight for the WACC calculation is _______​(Round to two decimal​ places.)

Solutions

Expert Solution

Debt:

Market Value of Debt = $101,000,000

Preferred Stock:

Market Value of Preferred Stock = $22,000,000

Common Equity:

Number of shares outstanding = 5,800,000
Current Price = $50

Market Value of Common Equity = 5,800,000 * $50
Market Value of Common Equity = $290,000,000

Market Value of Firm = Market Value of Debt + Market Value of Preferred Stock + Market Value of Common Equity
Market Value of Firm = $101,000,000 + $22,000,000 + $290,000,000
Market Value of Firm = $413,000,000

Weight of Debt = $101,000,000 / $413,000,000
Weight of Debt = 0.2446 or 24.46%

Weight of Preferred Stock = $22,000,000 / $413,000,000
Weight of Preferred Stock = 0.0533 or 5.33%

Weight of Common Equity = $290,000,000 / $413,000,000
Weight of Common Equity = 0.7021 or 70.21%

The debt weight for the WACC calculation is 24.46%
The preferred stock weight for the WACC calculation is 5.33%
The common equity weight for the WACC calculation is 70.21%

jeff jeffy answered 5 months ago
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