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Eleven-7 Inc. has 12,500 shares of outstanding shares, being sold at $42 per share. The book...

Eleven-7 Inc. has 12,500 shares of outstanding shares, being sold at $42 per share. The book value of equity equals $400,000. The face value of debt equals $250,000. The debt is currently quoted at 101.2% of the face value. Based on the above information, which of the following should be used as the equity ratio (i.e., the weight of equity) to compute weight average cost of capital?

72.09%

67.48%

69.74%

61.54%
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Answer #1
Market value of equity $       5,25,000
(12500 shares *$42 per share)
Market value of debt $       2,53,000
($250000*101.2%)
Total $       7,78,000
Weight of equity should be used for WACC
=$525000/778000
67.48%
Correct Option : SECOND
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