JackITs has 5 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 20 thousand bonds. If the common shares are selling for $28 per share, the preferred shares are selling for $13.50 per share, and the bonds are selling for 98 percent of par, what would be the weight used for common stock in the computation of JackITs' WACC?
A) 33.33 percent
B) 80.88 percent
C) 83.08 percent
D) 91.19 percent

Question

Quizplus · Accepted Answer

To calculate the weight of common stock in the WACC, we first need to find the market value of each component (common stock, preferred stock, and bonds). - Common stock market value = 5,000,000 shares * $28 = $140,000,000- Preferred stock market value = 1,000,000 shares * $13.50 = $13,500,000- Bonds market value = 20,000 * $1,000 * 98% = $19,600,000 (assuming par value is $1,000 per bond)Total market value = $140,000,000 (common) + $13,500,000 (preferred) + $19,600,000 (bonds) = $173,100,000Weight of common stock = $140,000,000 / $173,100,000 = 0.8088 or 80.88%

JackITs Has 5 Million Shares of Common Stock Outstanding, 1