Question

Asked Nov 18, 2019

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(Defining capital structure weights) In August 2015 the capital structure of the Emerson Electric Corporation (EMR) (measured in book and market values) was as follows:

**($ Millions)** **Book Value Market Value****Short-term debt** $2,553 $2,553**Long-term debt** $4,289 $4,289**Common equity** $8,081 $35,690**Total capital** $14,923 $42,532

A). The appropriate weight of debt, wd, is %. (Round to one decimal place.)

B). The appropriate weight of common equity, wcs, is %. (Round to one decimal place.)

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Step 1

It is better to consider market value instead of book value. The valuation of a company is based on stock market, if market values are used in calculation. Assets of the company are also accounted on the basis of their market price.

The formula to calculate weight of debt is given below:

Step 2

Substitute $2,553 for short term debt, $4,289 for long term debt and $42,532 for total capital in the above formula,

Step 3

The formula to calculate weight of c...

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