A firm has issued $5 par value preferred stock that pays a $0.80 annual dividend. The stock currently sells for $9.50. In calculating WACC, what should one use for the value of the firm's preferred stock?
A)$0.80
B)$4.20
C)$5.00
D)$9.50

Question

Quizplus · Accepted Answer

In calculating the Weighted Average Cost of Capital (WACC), the market value of the securities is used. Therefore, for the preferred stock, its current market price of $9.50 should be used, not its par value or dividend amount.

A Firm Has Issued $5 Par Value Preferred Stock That