What % Age of Value Should Be Allocated to Equity

question 82

Multiple Choice

What % age of value should be allocated to equity in WACC computations for a firm with $50 million in debt selling at 85% of par, $50 million in book value of equity, and $65 million in market value of equity?

• A)50.0%
• B)54.1%
• C)56.5%
• D)60.5%

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Definitions:

Absorption Costing

In this accounting procedure, the full scope of manufacturing costs, covering direct materials, direct labor, and both kinds of manufacturing overhead—variable and fixed—is accounted for in the product's pricing.

Ending Inventory

The total value of goods available for sale at the end of an accounting period.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted; this contribution covers fixed expenses and generates profit.

Absorption Costing

An accounting method that includes all direct costs and allocated overheads in the cost of a product or service, as opposed to variable costing which excludes certain overheads.