Question

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. It 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%

Answer 1

Correct option is B.

The weight of debt for WACC purposes is 23.08%

Step-by-step 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%