The following information comes from the balance sheet of Roamer Enterprises. The value of common stock is $60,000, retained earnings equals $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 long-term debt, preferred stock, and equity, we need to find the total value of the firm first. 
Total Value = Common Stock + Retained Earnings + Preferred Stock + Long-Term Debt 
Total Value = $60,000 + $40,000 + $10,000 + $120,000 
Total Value = $230,000

Now we can calculate the weights: 
Long-Term Debt Weight (D/V) = Long-Term Debt / Total Value 
D/V = $120,000 / $230,000 = 52.17% 
Preferred Stock Weight (PS/V) = Preferred Stock / Total Value 
PS/V = $10,000 / $230,000 = 4.35% 
Equity Weight (E/V) = Common Equity / Total Value 
E/V = ($60,000 + $40,000) / $230,000 = 43.48%

Therefore, the correct answer is B, with D/V = 52.17%, PS/V = 4.35%, and E/V = 43.48%.

The Following Information Comes from the Balance Sheet of Roamer