Company X Has 2 Million Shares of Common Stock Outstanding

question 56

Multiple Choice

Company X has 2 million shares of common stock outstanding at a book value of $2.00 per share.The stock trades for $3.00 per share.It also has $2 million in face value of debt that trades at 90% of par.What is its ratio of debt to value for WACC purposes?

• A) 13.9%
• B) 23.1%
• C) 31.0%
• D) 76.9%

---

Definitions:

Oil Company

An enterprise engaged in the exploration, extraction, refining, and selling of oil and petroleum products.

Seasoned Offerings

The issuance of additional shares by a company whose shares are already publicly traded.

Leveraged Buyouts

Acquisition of a company using a significant amount of borrowed money (debt) to meet the cost of acquisition.

Proxy Contests

Attempts to gain control of a firm by soliciting a sufficient number of shareholder votes to replace existing management.