Suppose Corporation A has a book (face) debt value of $9M, trading at 89% of face value. It also has book equity of $21 million, and 2.91 million shares of common stock trading at $20 per share. What is the weight for debt that Corporation A should use in calculating its WACC?

The weight for debt that Corporation A = 12.10%

Step-by-step explanation

First, compute the total value of the capital structure 

• Total value of the capital structure = Market value of debt + Market Value of equity

Total value of the capital structure =( 9 million * 089)+ (1.2 million shares *$20) 

Total value of the capital structure =$8.01 million +58.20  million =66.21

Next, the proportion of debt in the capital structure is calculated as
 

• Weight of debt + Market value of debt/ Total capital structure value 

The weight for debt that Corporation A =8.01/ 66.21=0.1210 or 12.10% (As a percent)