TellAll has 10 million shares of common stock outstanding, 20 million shares of preferred stock outstanding, and 100 thousand bonds. If the common shares are selling for $32 per share, the preferred shares are selling for $20 per share, and the bonds are selling for 106 percent of par, what would be the weight used for preferred stock in the computation of TellAll's WACC?
A) 33.33 percent
B) 48.43 percent
C) 55.55 percent
D) 66.45 percent

Question

Quizplus · Accepted Answer

To calculate the weight of preferred stock in the WACC, first, find the market value of each type of security. Common stock = 10 million shares * $32 = $320 million. Preferred stock = 20 million shares * $20 = $400 million. Bonds = 100,000 bonds * $1,000 * 106% = $106 million. Total market value = $320 million + $400 million + $106 million = $826 million. The weight of preferred stock = $400 million / $826 million = 48.43%.

TellAll Has 10 Million Shares of Common Stock Outstanding, 20