What Equity Proportion Should Be Used When Calculating WACC for a Firm

question 33

Multiple Choice

What equity proportion should be used when calculating WACC 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) 50.00%
• B) 54.18%
• C) 56.55%
• D) 60.47%

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Definitions:

Bad Debts Expense

An expense account reflecting the cost of accounts receivable that a company does not expect to collect due to customer defaults.

Allowance Method

An accounting technique used to account for bad debts by estimating and recording uncollectible accounts receivable.

Outstanding Receivables

The total amount of money owed to a company by its customers for goods or services delivered but not yet paid for.

Allowance for Doubtful Accounts

A reserve for accounts receivable that may not be collectable, reducing the book value of accounts receivable to a more realistic value.