Company X has 2 million shares of common stock outstanding at a book value of $2 per share. The stock trades for $3 per share. I

Question

3 years ago

14

Company X has 2 million shares of common stock outstanding at a book value of $2 per share. The stock trades for $3 per share. I

t also has $2 million in face value of debt that trades at 90% of par. What is the weight of debt for WACC purposes?
A) 13.91%
B) 23.08%
C) 31.03%
D) 27.67%

Business

1 answer:

Vera_Pavlovna [14] · Answer 1 · 2021-11-25T22:58:23+03:00

Answer:

Correct option is B.

<u> The weight of debt for WACC purposes is 23.08%</u>

Explanation:

Amount of debt = 2 million x 0.90

= 1.80 million

Amount of equity = 2 million x 3

= 6 million

Weight of debt = amount of debt/ (amount of debt + amount of equity)

= 1.80 million / ( 6 million + 1.80 million)

=23.08%