The following data pertains to xena corp.: xena corp. total assets $23,610 interest-bearing debt (market value) $11,070 average borrowing rate for debt 10.2% common equity: book value $ 6,150 market value $25,830 marginal income tax rate 37% market beta 1.73 determine the weight on equity capital that should be used to calculate xena's weighted-average cost of capital. select one:

a. 73.8%
b. 70.0%
c. 24.0%
d. 38.7%

Option (B) is correct.

Explanation:

Given that,

Total Assets = $23,610

Interest-Bearing Debt (market value) = $11,070

Average borrowing rate for debt = 10.2%

Common Equity:

Book Value = $6,150

Market Value = $25,830

Marginal Income Tax Rate = 37%

Market Beta = 1.73

Hence,

Weight on equity capital = Equity ÷ (Debt + Equity)

                                         = 25,830 ÷ (11,070 + 25,830)

                                         = 25,830 ÷ 36,900

                                         = 70%

Therefore, the weight on equity capital is 70%.

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