Company X has 2 million shares of common stock outstanding at a book value of $2 per share.The stock trades for $3.00 per share.It also has $2 million in face value of debt that trades at 90% of par.What is its ratio of debt to value for WACC purposes?(Use the values in dollar.)

Question

Quizplus · Accepted Answer

The total value of the equity is 2 million shares * $3.00 = $6 million. The total value of the debt is $2 million * 90% = $1.8 million. The total value of the firm is $6 million (equity) + $1.8 million (debt) = $7.8 million. The ratio of debt to total value is $1.8 million / $7.8 million = 23.08%.

Company X Has 2 Million Shares of Common Stock Outstanding