Assume JUP has debt with a book value of $24 million, trading at 120% of par value. The firm has book equity of $28 million, and 2 million shares trading at $20 per share. What weights should JUP use in calculating its WACC?
A) 41.86% for debt, 58.14% for equity
B) 37.67% for debt, 62.33% for equity
C) 33.49% for debt, 66.51% for equity
D) 29.30% for debt, 70.70% for equity

Question

Quizplus · Accepted Answer

A) Market Value Debt = $24 million × 120% = $28.8 million
Market Value Equity = 2 million × $20 = $40 million
Total Market Value = $68.8 million
Weight of debt = $28.8 million / $68.8 million = 41.86%
Weight of equity = $40 million / $68.8 million = 58.14%

Assume JUP Has Debt with a Book Value of $24