Barley Corp has debt with a book value of $19 million,currently trading at 90% of book value.It also has book value of equity of $15 million,and 10 million shares of common stock trading at $2.45 per share.What weights should Barley Corp use for debt and equity in calculating its WACC?
A)0.56,0.44
B)0.44,0.56
C)0.41,0.59
D)0.5,0.5
E)0.6,0.4

Question

Quizplus · Accepted Answer

The market value of debt is $17.1 million (90% of $19 million). The market value of equity is $24.5 million (10 million shares * $2.45). The total market value is $41.6 million. The weight of debt is $17.1 million / $41.6 million = 0.41, and the weight of equity is $24.5 million / $41.6 million = 0.59.

Barley Corp Has Debt with a Book Value of $19