Company X has 2 million shares of common stock outstanding at a book value of $2 per share.The stock trades for $3.00 per share.It also has $2 million in face value of debt that trades at 90% of par.What is the appropriate debt ratio (D/(D+E))to use for calculating Company X's weighted-average cost of capital?
A) 23.1%
B) 25.0%
C) 31.0%
D) 33.3%

Question

Quizplus · Accepted Answer

D = 0.9 × $2 million = $1.8 million
E = $3 × 2 million = $6 million
D/(D+E)= 1.8/(1.8 + 6)= 0.231

Company X Has 2 Million Shares of Common Stock Outstanding