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Binomial Tree Farm’s financing includes $6.10 million of bank loans and $7.10 million book (face) value...

Binomial Tree Farm’s financing includes $6.10 million of bank loans and $7.10 million book (face) value of 10-year bonds, which are selling at 90% of par value. Its common equity is shown in Binomial’s Annual Report at $7.77. It has 610,000 shares of common stock outstanding which trade on the Wichita Stock Exchange at $25 per share. What debt ratio should Binomial use to calculate its WACC?

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Answer #1

Debt ratio to be used=Total Debt/Total Assets=(6.10+7.10*90%)/(6.10+7.10*90%+610000*25/10^6)
=0.45025234

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