Question

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

Answer 1

Answer:

The Weighted Average cost of capital measures the cost to the company of its current capital structure by using the weights of the various capital measures. WACC usually uses market values so;

Total amount = Debt + Preferred stock + common equity

= 100 million + 20 million + ( 50 * 6 million)

= $420 million

Proportions.

Debt

= 100/420

= 24%

Preferred Stock

= 20/420

= 5%

Common Equity

= 300/420

= 71%