Rings N Things Industries has 40 million shares of common stock outstanding, 20 million shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling for $25 per share, the preferred shares are selling for $15 per share, and the bonds are selling for 100 percent of par ($1,000), what would be the weights used in the calculation of Rings' WACC for common stock, preferred stock, and bonds, respectively?
A) 33.33 percent, 33.33 percent, 33.33 percent
B) 74.07 percent, 22.22 percent, 3.71 percent
C) 66.61 percent, 33.31 percent, 0.08 percent
D) 17.86 percent, 10.71 percent, 71.43 percent

Question

Quizplus · Accepted Answer

To calculate the weights for the WACC, you first need to find the market value of each component. Common stock = 40 million shares * $25 = $1 billion, Preferred stock = 20 million shares * $15 = $300 million, Bonds = 50 thousand * $1,000 = $50 million. Total value = $1 billion + $300 million + $50 million = $1.35 billion. Weights: Common = $1 billion / $1.35 billion = 74.07%, Preferred = $300 million / $1.35 billion = 22.22%, Bonds = $50 million / $1.35 billion = 3.71%.

Rings N Things Industries Has 40 Million Shares of Common