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Book co
Book co. has 1.3 million shares of common equity with a par (book) value of $1.05, retained earnings of $31.3 milion, and its shares have a market value of $49.29 per share. It also has debt with a par value of $21.6 million that is tracing at 105% 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?
Expert Solution
a) Computation of the market value of equity:-
Market value of equity = Number of shares * Market value per share
= 1.3 * $49.29
= $64.08 million
b) Computation of the market value of debt:-
Market value of debt = Par value * Percent of par
= $21.6 * 105%
= $22.68 million
c) Computation of the weights:-
Total value = Market value of equity + Market value of debt
= $64.08 + $22.68
= $86.76 million
Weight of equity = Market value of equity / Total value
= $64.08 / $86.76
= 73.86%
Weight of debt = Market value of debt / Total value
= $22.68 / $86.76
= 26.14%
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