Given are the following data for Vinyard Corporation:

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

Question

Given are the following data for Vinyard Corporation:

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

Quizplus · Accepted Answer

Since no information is given about Vinyard Corporation's capital structure or financial leverage, we can only make an assumption based on industry averages or similar companies. However, choice C seems to be the most reasonable because it represents a fairly conservative capital structure with a lower proportion of debt and a higher proportion of equity. This is generally seen as less risky and may result in a lower cost of capital.

Given Are the Following Data for Vinyard Corporation