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Capital Structure. Binomial Tree Farm’s financing includes $5 million of bank loans and $6 million book...

Capital Structure. Binomial Tree Farm’s financing includes $5 million of bank loans and $6 million book value of 10-year bonds, which are selling at 95% of par value. Its common equity is shown in Binomial’s Annual Report at $6.67. It has 500,000 shares of common stock outstanding which trade on the Wichita Stock Exchange at $18 per share. What debt ratio should Binomial use to calculate its WACC?

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Answer #1

The inputs the formulas used is as follows:


The result is as follows:

Hence, the ratio of debt is 29.31% in WACC

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