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21 April, 00:28

Assume Lavender Corporation has a market value of $4 billion of equity and a market value of $19.8 billion of debt. What are the weights in equity and debt that are used for calculating the WACC?

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  1. 21 April, 01:55
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    Debt = 83.19%

    Equity = 16.81%

    Explanation:

    Given that

    Market value of the equity = $4 billion

    Market value of debt = $19.8 billion

    Total firm capital would be

    = Market value of the equity + Market value of the debt

    = $4 billion + $19.8 billion

    = $23.8 billion

    So, the weightage of debt would be

    = Market value of debt : Total firm capital

    = $19.8 billion : $23.8 billion

    = 83.19%

    And, the weightage of equity is

    = Market value of equity : Total firm capital

    = $4 billion : $23.8 billion

    = 16.81%
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