Question

The total market value of General Motors​ (GM) is​ $10 billion. GM has a market value of $7 billion of equity and a face value of $12 billion of debt. What are the weights in equity and debt that are used for calculating the​ WACC? A. 0.7​, 0.3 B. 0.3​, 0.7 C. 0.35​, 0.65 D. cannot be determined

Answer 1

Answer:

A

Explanation:

The market value of equity and debt are used in calculating the weights when determining WACC

Total market value = market value of debt + market value of equity

$10 billion = 7 billion +  market value of debt

market value of debt = $3 billion

weight of debt = $3 billion / $10 billion =0.3

weight of equity = $7 billion / $10 billion = 0.7