Company X has 2 million shares of common stock outstanding with a book value of $2 per share.The stock trades for $3 per share.It also has $2 million in face value of debt that trades at 90% of face value.What is the debt ratio that should be used to calculate WACC?

Question

Quizplus · Accepted Answer

Debt ratio = (0.90 × $2m) / [(2m × $3) + (0.90 × $2m)] = 0.2308, or 23.08%

Company X Has 2 Million Shares of Common Stock Outstanding