### Financial Calculation: WACC Weights for Andyco, Inc.Andyco, Inc. presents the following balance sheet along with an equity market-to-book ratio of 1.5. It is assumed that the market value of debt equals its book value. The task is to determine the appropriate weights for the WACC (Weighted Average Cost of Capital) calculation.#### Balance Sheet:**Assets**: $1,000##### Liabilities & Equity:- **Debt**: $400- **Equity**: $600Given the equity market-to-book ratio of 1.5, the market value of equity (E) is calculated as:\[ \text{Market Value of Equity} = \text{Book Value of Equity} \times \text{Market-to-Book Ratio} \]\[ E = \$600 \times 1.5 = \$900 \]**Total Market Value Calculation:**\[ V = \text{Market Value of Debt} + \text{Market Value of Equity} \]\[ V = \$400 + \$900 = \$1300 \]### Determining WACC Weights:1. **Debt Weight (Wd)**:\[ W_d = \frac{\text{Market Value of Debt}}{\text{Total Market Value}} \]\[ W_d = \frac{\$400}{\$1300} = 0.3077 \]\[ W_d \text{ (rounded to two decimal places)} = 30.77\% \]2. **Equity Weight (We)**:\[ W_e = \frac{\text{Market Value of Equity}}{\text{Total Market Value}} \]\[ W_e = \frac{\$900}{\$1300} = 0.6923 \]\[ W_e \text{ (rounded to two decimal places)} = 69.23\% \]### Conclusion:- The debt weight for the WACC calculation is **30.77%**.- The equity weight for the WACC calculation is **69.23%**.

For calculation of WACC, we need to use market value of debt and equity. Weight can be calculated…

Andyco, Inc., has the following balance sheet and an equity market-to-book ratio of 1.5. Assuming the market value of debt equals its book value, what weights should it use for its WACC calculation? Assets Liabilities & Equity $1,000 Debt $400 Equity $600 The debt weight for the WACC calculation is %. (Round to two decimal places.) The equity weight for the WACC calculation is places.) %. (Round to two decimal

Andyco, Inc., has the following balance sheet and an equity market-to-book ratio of 1.5. Assuming the market value of debt equals its book value, what weights should it use for its WACC calculation? Assets Liabilities & Equity $1,000 Debt $400 Equity $600 The debt weight for the WACC calculation is %. (Round to two decimal places.) The equity weight for the WACC calculation is places.) %. (Round to two decimal

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter10: The Cost Of Capital

Section: Chapter Questions

Problem 3TCL: CALCULATING 3Ms COST OF CAPITAL In this chapter, we described how to estimate a companys WACC, which...

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