GM has a market value of $8 billion of equity and a market value of $12 billion of debt.What are the weights in equity and debt that are used for calculating the WACC?

Question

Quizplus · Accepted Answer

The weights of equity and debt are calculated by dividing their respective market values by the total market value of the company.

Weight of Equity = Market Value of Equity / Total Market Value
= 8 billion / (8 billion + 12 billion)
= 0.4

Weight of Debt = Market Value of Debt / Total Market Value
= 12 billion / (8 billion + 12 billion)
= 0.6

Therefore, the weights of equity and debt for calculating WACC are 0.4 and 0.6 respectively. Option C is the correct answer.

GM Has a Market Value of $8 Billion of Equity