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The total market value of General Motors​ (GM) is​ $10 billion. GM has a market value...

The total market value of General Motors​ (GM) is​ $10 billion. GM has a market value of $9 billion of equity and a face value of $15 billion of debt. What are the weights in equity and debt that are used for calculating the​ WACC?

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Answer #1

While calculation of the weighted average cost of capital, it is important to focus on the market value of both the debt and equity because they are representing the two scenarios according to the changing environment rather than focusing on book value.

So the market value of equity= 9 billion will be taken.

Market value of debt will also be tried to be taken in this question, it is not given .

Market value of debt can be taken as=( 10-9)= 1 billion.

Weights of equity= 90%

Weights of debt= 10%

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