Adapt Electric Cars has two preferred stock offerings. The first consists of 100,000 shares of Class A preferred which yield 9%. The second consists of 200,000 shares of Class B preferred with a yield of 7.8%. The Class A shares are currently selling at $81 a share and the Class B shares are currently selling at $56 a share. What is the weighted average cost of preferred stock?

Question

Quizplus · Accepted Answer

To calculate the weighted average cost of preferred stock, we first determine the annual dividend for each class of shares and then calculate the total value of each class of shares. Finally, we find the weighted average based on the total value of all preferred shares.For Class A preferred:- Dividend per share = 9% of $81 = $7.29- Total value = 100,000 shares * $81 = $8,100,000For Class B preferred:- Dividend per share = 7.8% of $56 = $4.368- Total value = 200,000 shares * $56 = $11,200,000Total value of all preferred stock = $8,100,000 (Class A) + $11,200,000 (Class B) = $19,300,000Weighted average cost = [(100,000 shares * $7.29) + (200,000 shares * $4.368)] / $19,300,000= ($729,000 + $873,600) / $19,300,000= $1,602,600 / $19,300,000= 0.083 or 8.30%

Adapt Electric Cars Has Two Preferred Stock Offerings