Answer to Question #50969 in Finance for Os

Question

Book Co. has 1.1 million shares of common equity with par (book) value of $1.35 and retained earnings of $28.5 million, and its shares have a market value of $50.29 per share. It also has debt with a par value of $18.4 million that is trading at 101% of par.

a. What is the market value of its equity?
b. What is the market value of its debt?
c. What weights should it use in a computing its WACC?

Answer 1

a. What is the market value of its equity?
Equity = 1.1 million shares * $50.29 + $28.5 million = $83.819 million

b. What is the market value of its debt?
Debt = $18.4 million * 101% /100% = $18.584 million

c. What weights should it use in a computing its WACC?
For equity: Equity / (Equity + Debt) = $83.819 million / ($83.819million + =$18.584 million) = 0.8185
For debt: Debt / (Equity + Debt) =$18.584 million =0.1815