In August of 2009 the capital structure of the Emerson Electric Corporation (EMR

Question

In August of 2009 the capital structure of the Emerson Electric Corporation (EMR) (measured in book and market values) appeared as follows:

What weights should Emerson use when computing the firm’s weighted average cost of capital?

The appropriate weight of debt, is?

The appropriate weight of common equity is?

Thousands of dollars Book values Market values short-term debt $1,244,000 $1,244,000 long-term debt 11,926,000 11,926,000 common equity 9,120,000 26,262,000 total capital 22,290,000 39,432,000

Explanation / Answer

we will use market weights as that reflects the true side.

weight of debt=(1244000+11926000)/39432000=33.4%

weight of equity=26262000/39432000=66.6%

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