The appropriate weight of debt is __% (nearest cent) Take a Test- Patrick Quigle

Question

The appropriate weight of debt is __% (nearest cent) Take a Test- Patrick Quigley Secure l https://www.mathxl.com/Student/PlayerTest.aspx?testid-172973966&centerwinaye; FINC 300 (01): Fall 2017 Test: Exam 2 Submit Test This Question: 3 pts 26 of 30 (4 complete) his Test 100 pts possi.. Question Help | * (Defining capital structure weights) In August 2015 the capital structure of the Emerson Electric Corporation (EMR) (measured in book and market values) was as follows: ($ Millions) Short-term debt Long-term debt Common equity Total capital Book Value $2,521 4,361 8,132 $15,014 Market Value $2,521 4,361 35,742 $42,624 What weights should Emerson use when computing the firm's weighted average cost of capital? The appropriate weight of debt, wd is %. (Round to one decimal place.) The appropriate weight of common equity, wcs, is 96 (Round to one decimal place. Enter your answer in each of the answer boxes.

Explanation / Answer

Answer:

The Weight of Debt and Equity will be calculated using Market Value instead of Book Value, as onw should prefer Market Value over Book Value.

Total Debt = $2,521 + $4,361
Total Debt = $6,882

Total Equity = $35,742

Total Capital = $42,624

Weight of Debt = Total Debt / Total Capital * 100
Weight of Debt =6,882 / 42,624 * 100
Weight of Debt = 16.15%

Weight of Equity = Total Equity / Total Capital * 100
Weight of Equity = 35,742 / 42,624 * 100
Weight of Equity = 83.85%

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