Question

Using Exhibit A Current Selected Financial Information For XYZ Yield to maturity 10.00% Market Value of debt $500 million Number of shares of common stock 30 million Market price per share of common stock $60 Cost of capital if all equity-financed 11.3% Margin tax rate 40% 19. Based on Exhibit A, ABC is best described as currently ____% debt financed and _____equity financed.

Answer 1

Based on Exhibit A, ABC is best described as currently 21.74% debt financed and 78.26% equity financed.

Step-by-step explanation:

we must calculate the weight of debt and equity:

the firm's total value = market value of debt + market value of equity

market value of debt = $500 million

market value of equity = 30,000,000 stocks x $60 per stock = $1,800,000,000

the firm's total value = $2,300,000,000

weight of debt = $500 / $2,300 = 0.2174 = 21.74%

weight of equity = $1,800 / $2,300 = 0.7826 = 78.26%