Mistletoe Unlimited has 1,100 bonds outstanding that are selling for $992 each. The company also has 9,500 shares of preferred stock at a market price of $46 each. The common stock is priced at $29 a share and there are 34,500 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

To find the weight of the preferred stock in the firm's capital structure, first calculate the market value of each component:- Bonds: 1,100 bonds * $992 = $1,091,200- Preferred Stock: 9,500 shares * $46 = $437,000- Common Stock: 34,500 shares * $29 = $1,000,500Total market value = $1,091,200 (bonds) + $437,000 (preferred stock) + $1,000,500 (common stock) = $2,528,700Weight of preferred stock = Market value of preferred stock / Total market value = $437,000 / $2,528,700 = 0.1728 or 17.28%, which rounds to 17%.

Mistletoe Unlimited Has 1,100 Bonds Outstanding That Are Selling for $992