Company X Has 2 Million Shares of Common Stock Outstanding

question 74

Multiple Choice

Company X has 2 million shares of common stock outstanding with a book value of $2 per share.The stock trades for $3 per share.It also has $2 million in face value of debt that trades at 90% of face value.What is the debt ratio that should be used to calculate WACC?

• A) 13.91%
• B) 23.08%
• C) 31.03%
• D) 27.67%

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Definitions:

No Training

Indicates a situation or condition where education or instruction has not been provided.

Partially Disclosed Principal

A partially disclosed principal is a party in an agency relationship whose existence is known to a third party, but their identity is not revealed.

Undisclosed Principal

A person who directs another to deal with a third party without revealing their identity.

Durable Power

A legal document that grants someone the authority to act on another's behalf in legal and financial matters, which continues to be effective even if the grantor becomes incapacitated.