Can someone assist me as to how to approach this problem:

Suppose a firm has 12.2 million shares of common stock outstanding with a par value of $1.00 per share. The current market price per share is $15.50. The firm has outstanding debt with a par value of 72.0 million selling at 101% of par. What weight would you use for debt when computing the WACC?

I am lost as to where to begin. Pleas advise.

Thanks.

EM

In order for the WACC to give an economically meaningful measure, you want to weight the individual capital structure components by their relative market values.

If I have a bond issue outstanding that's currently trading at $1,500,000 (total) and outstanding stock with a market value of $750,000, the WACC weights for the debt and for the equity are 2/3 and 1/3, respectively.

Hence neither the face value nor the original issue price of the debt is relevant---unless of course the debt is so recently-issued that it's still trading at, or very near, its issue price.