Carrie D's has 6 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $15 per share, the preferred shares are selling for $28 per share, and the bonds are selling for 109 percent of par, what would be the weight used for common stock in the computation of Carrie D's WACC?
A) 33.33 percent
B) 57.36 percent
C) 61.64 percent
D) 75.00 percent

Question

Quizplus · Accepted Answer

The weight used for common stock in the computation of Carrie D's WACC is calculated by dividing the market value of the common stock by the total market value of the firm's financing. The market value of common stock is 6 million shares * $15 = $90 million. The market value of preferred stock is 2 million shares * $28 = $56 million. The market value of bonds is 10,000 bonds * $1,000 * 109% = $10.9 million. The total market value is $90 million + $56 million + $10.9 million = $156.9 million. The weight of common stock is $90 million / $156.9 million = 57.36 percent.

Carrie D's Has 6 Million Shares of Common Stock Outstanding