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german
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]3 years ago
8 0

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%

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