Book co. has 1.0 million shares of common stock equity with a par (book) value of...
Book co. has 1.0 million shares of common stock equity with a par (book) value of $1.00, retained earnings of $30.0 million, and its shares have a market value of $50.00 per share. it also has debt with a par value of $20.00 million that is trading at 101% of par.
a. What is the market value of its equity?
b. What is the market value of its debt?
c. What weights should it use in computing its WACC?
Homework Answers
a, Market value of equity
=10,00,000*50=50,000,000
b. Market value of debt
=20 million * 101% =20,200,000
c, Weight to be used
Market values are considered for weight
So weight of equity = 50,000,000/ [ 50,000,000+20,200,000]
=.71
So weight of debt = 1-.71=.29
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