High School

A firm has 12,500 shares of stock outstanding that sell for $42 each. The book value of equity is $400,000. The firm has also issued $250,000 face value of debt that is currently quoted at 101.2. What value should be used as the weight of equity when computing WACC?

A. 67.48%
B. 72.09%
C. 61.54%
D. 69.74%

Answer :

Final answer:

The value that should be used as the weight of equity when computing WACC is $525,000.

Explanation:

The weight of equity when computing WACC should be based on the market value of the equity. Market value is determined by multiplying the number of shares outstanding by the current share price. In this case, the market value of the equity would be 12,500 shares multiplied by $42 per share, which equals $525,000. Therefore, the value that should be used as the weight of equity is $525,000.

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