The following information comes from the balance sheet of Roamer Enterprises.The value of common stock is $60,000,retained earnings equal $40,000,total common equity equals $100,000,preferred stock has a value of $10,000 and long-term debt totals $120,000.For purposes of estimating the firm's WACC,what are the weights of long-term debt,preferred stock,and equity?
A)D/V = 52.17%,PS/V = 43.48%,and E/V = 4.35%
B)D/V = 52.17%,PS/V = 4.35%,and E/V = 43.48%
C)D/V = $120,000,PS/V = $10,000,and E/V =$100,000
D)There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

To calculate the weights of each component, we need to divide their respective values by the total value of the firm's capital structure:

D/V = Long-term debt / (Long-term debt + Preferred stock + Common equity) = $120,000 / ($120,000 + $10,000 + $100,000) = 52.17%
PS/V = Preferred stock / (Long-term debt + Preferred stock + Common equity) = $10,000 / ($120,000 + $10,000 + $100,000) = 4.35%
E/V = Common equity / (Long-term debt + Preferred stock + Common equity) = $100,000 / ($120,000 + $10,000 + $100,000) = 43.48%

Therefore, the best answer is choice B.

The Following Information Comes from the Balance Sheet of Roamer