The Auto Group has 1,200 bonds outstanding that are selling for $980 each.The company also has 7,500 shares of preferred stock at a market price of $40 each.The common stock is priced at $32 a share and there are 32,000 shares outstanding.What is the weight of the preferred stock as it relates to the firm's weighted average cost of capital?

Question

Quizplus · Accepted Answer

Step 1 - Calculate the value of the firm's securities. V = E + D + P E = 32 × 32,000 = 1,024,000D = 980 × 1,200 = 1,176,000P = 40 × 7,500 = 300,000V = 2,500,000 Step 2 - Calculate the weight of preferred stock. W_p = P/V W_p = 300,000 / 2,500,000 = 12%

The Auto Group Has 1,200 Bonds Outstanding That Are Selling