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Sergeeva-Olga [200]
3 years ago
5

​Andyco, Inc., has the following balance sheet and an equity​ market-to-book ratio of 1.4. Assuming the market value of debt equ

als its book​ value, what weights should it use for its WACC​ calculation? g

Business
1 answer:
Digiron [165]3 years ago
5 0

Answer:

29.80%

70.20%

Explanation:

The computation of weights should it use for its WACC is shown below:-

FMV of Andyco's Equity = Equity × Equity market-to-book ratio

= $690 × 1.4

= $966

Weight for Debt = Debt ÷ (FMV Equity + Debt)

= $410 ÷ ($966 + $410)

= $410 ÷ $1,376

= 29.80%

Weight for Equity = FMV Equity ÷ (Debt + FMV Equity)

= $966 ÷ ($410 + $966)

= $966 ÷ $1,376

= 70.20%

Therefore we have applied the above formula

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