Question

MV Corporation has debt with market value of $ 95 ​million, common equity with a book value of $ 101 ​million, and preferred stock worth $ 17 million outstanding. Its common equity trades at $ 51 per​ share, and the firm has 6.1 million shares outstanding. What weights should MV Corporation use in its​ WACC?

Answer 1

The total market value of the firm is $423.1 million.

Debt is 22.44% of the total value, Preferred stock is 4.10%,

Common equity is 73.52%.

Step-by-step explanation:

MV Corporation

Value of debt: $95 million

Value of preferred stock: $17 million

Market value of common equity: $51 per share × 6.1 million shares= $311.1million

Total market value of firm: $95 +17 +311.1 =$423.1 million

Weights for WACC calculation:

Debt = 95÷423.1

=22.45%

Preferred Stock 17÷423.1

=4.10%

Common Equity 311.1÷423.1

=73.52

Hence The total market value of the firm is $423.1million. Debt is 22.44% of the total value, preferred stock is 4.10%, and common equity is 73.52%.