Question

Compute the weight of common equity that should be used in the firm's WACC calculation if the market value of the firm's debt is $62 million, the market value of the firm's preferred stock is $7 million and the market value of the firm's common equity is $111 million. Enter your answer as a decimal (i.e. 0.54)

Answer 1

0.62 or 62 %

Step-by-step explanation:

Weight of common equity = Market Value of Equity ÷ Total Market Value of Sources of Finance

where,

Market Value of Equity = $111 million

Total Market Value of Sources of Finance = $62 million + $7 million + $111 million = $180 million

therefore,

Weight of common equity = $111 million ÷ $180 million

= 0.62 or 62 %

Conclusion

the weight of common equity that should be 0.62 or 62 %