MV Corporation has debt with market value of $105 million, common equity with a

Question

MV Corporation has debt with market value of $105 million, common equity with a book value of $101 million, and preferred stock worth $17 million outstanding. Its common equity trades at $50 per share, and the firm has 6.4 million shares outstanding. What weights should MV Corporation use in its WACC?

a. The debt weight for the WACC calculation is: %.

(Round to two decimal places.)

b. The preferred stock weight for the WACC calculation is: %.

(Round to two decimal places.)

c. The common equity weight for the WACC calculation is: %.

(Round to two decimal places.)

Explanation / Answer

Total value of debt=$105million

Total market value of common equity=(50*6.4)=$320million

Total market of preferred stock=$17million

Total value=$(105+320+17)=$442million

a.Debt weight=(105/442)=23.76%(Approx).

b.Preferred weight=(17/442)=3.85%(Approx).

c.Common equity weight=(320/442)=72.40%(Approx).

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