Question text

Watson's Automotive has a $400,000 bond issue outstanding that is selling at 85 percent of face value. Watson's also has 21,000 shares of common stock outstanding with a market price of $21 a share. What is the weight of the debt as it relates to the firm's weighted average cost of capital?

Select one:

a. 44 percent

b. 42 percent

c. 40 percent

d. 41 percent

e. 48 percent