Question

The downtowner has 168,000 shares of common stock oustanding values at $53 a share along with...

The downtowner has 168,000 shares of common stock oustanding values at $53 a share along with 13,000 bonds selling for $1008 each. what weight should be given to the debt when the company computes its weighted average cost of capital?
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Answer #1

Answer:

Value of Equity = Number of Shares * Current Price per share
Value of Equity = 168,000 * $53
Value of Equity = $8,904,000

Value of Debt = Number of Bonds * Current Price per bond
Value of Debt = 13,000 * $1,008
Value of Debt = $13,104,000

Value of Firm = Value of Equity + Value of Debt
Value of Firm = $8,904,000 + $13,104,000
Value of Firm = $22,008,000

Weight of Debt = Value of Debt / Value of firm
Weight of Debt = $13,104,000 / $22,008,000
Weight of Debt = 0.5954

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