Question

MV Corporation has debt with market value of $ 95 ​million, common equity with a book value of $ 102 ​million, and preferred stock worth $ 20 million outstanding. Its common equity trades at $ 48 per​ share, and the firm has 5.6 million shares outstanding. What weights should MV Corporation use in its​ WACC? g

Answer 1

Total market value $383.8 million

Debt is 24.75%

Preferred stock is 5.21%

Common equity is 70.03%

Step-by-step explanation:

Calculation of the weights that MV Corporation should use in its WACC

Debt value : $95 million

Preferred stock value : $20 million

Market value of common equity:

$48 per share×5.6million shares= $268.8 million

Total market value of firm: $95 +20 +268.8 =$383.8 million

Weights for WACC calculation:

Debt =95/383.8

=24.75%

Preferred Stock =20/383.8

=5.21%

Common Equity =268.8/383.8

=70.03%

Therefore the total market value of the firm will be $383.8 million Debt is 24.85% of the total value, preferred stock is 5.21%, and common equity is 70.03%