Book Co. has 1.8 million shares of common equity with a par (book) value of $1.2
ID: 2801260 • Letter: B
Question
Book Co. has 1.8 million shares of common equity with a par (book) value of $1.20, retained earnings of $31.9 million, and its shares have a market value of $50.68 per share. It also has debt with a par value of $19.8 million that is trading at 104% 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 computing its WACC? a. What is the market value of its equity? The market value of the equity is $ million. (Round to two decimal places.)Explanation / Answer
Answer a.
Number of shares outstanding = 1,800,000
Market Value of shares = $50.68
Market Value of Equity = Number of shares outstanding * Market Value of shares
Market Value of Equity = 1,800,000 * $50.68
Market Value of Equity = $91,224,000
Answer b.
Par Value of Debt = $19,800,000
Trading Value = 104% of Par
Market Value of Debt = $19,800,000 * 104%
Market Value of Debt = $20,592,000
Answer c.
Market Value of Equity = $91,224,000
Market Value of Debt = $20,592,000
Total Market Value = Market Value of Debt + Market Value of Equity
Total Market Value = $20,592,000 + $91,224,000
Total Market Value = $111,816,000
Weight of Equity = Market Value of Equity / Total Market Value
Weight of Equity = $91,224,000 / $111,816,000
Weight of Equity = 0.8158
Weight of Debt = Market Value of Debt / Total Market Value
Weight of Debt = $20,592,000 / $111,816,000
Weight of Debt = 0.1842