Given Are the Following Data for Vinyard Corporation

question 29

Multiple Choice

Given are the following data for Vinyard Corporation: $\begin{array}{c|c}\text { Vinyard Corporation }& \text { Liquidating values, \$Millions) }\\\hline\text { Asset Value }\$ 1.500 &\$ 750 \text { Debt }\\--- & \$ 750 \text { Equity }\\\$ 1.500 &\$ 1.500\end{array}$ \begin{array}{c|c}\text { Vinyard Corporation }&\text { (Book values, \$Millions) }\\\hline\text { Asset Value }\$ 2,500 & \$ 1.000 \text { Debt }\\--- & \$ 1.500\text { Equity }\\\\$ 2,500&\$ 2.500\end{array} \begin{array}{c|c}\text { Vinyard Corporation }&\text { (Market values, \$Millions) }\\\hline\text { Asset Value }\$ 4.000 & \$ 1.000 \text { Debt }\\--- & \$ 3.000\text { Equity }\\\\$ 4.000 & \$ 4.000\end{array} $\begin{array}{c|c}\text { Vinyard Corporation }& \text { Liquidating values, \$Millions) }\\\hline\text { Asset Value }\$ 1.500 &\$ 750 \text { Debt }\\--- & \$ 750 \text { Equity }\\\$ 1.500 &\$ 1.500\end{array}$ Calculate the proportions of debt (D/V) and equity (E/V) that you would use for estimating Vinyard's weighted average cost of capital (WACC) .

• A)40 percent debt and 60 percent equity
• B)50 percent debt and 50 percent equity
• C)25 percent debt and 75 percent equity
• D)75 percent debt and 25 percent equity

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Definitions:

Economic Decisions

Choices made by individuals, businesses, or governments involving the allocation of resources to satisfy their needs and desires.

Correlated Risks

Risks that are linked in such a way that the occurrence of one affects the likelihood of the occurrence of another.

Agricultural Industry

The sector of the economy that deals with the production, processing, and distribution of food, fibers, and other goods derived from farming and related activities.

Screening

Using observable information about people to make inferences about their private information; a way to reduce adverse selection.