Adapt Electric Cars has two preferred stock offerings. The ﬁrst consists of 100,000 shares of Class A preferred which yield 9%. The second consists of 200,000 shares of Class B preferred with a
Yield of 7.8%. The Class A shares are currently selling at $81 a share and the Class B shares are
Currently selling at $56 a share. What is the weighted average cost of preferred stock?

Question

Quizplus · Accepted Answer

The weighted average cost of preferred stock is calculated by taking the proportion of each class of stock in the total market value and multiplying it by its yield, then summing these products. Class A: 100,000 shares * $81 = $8,100,000; Class B: 200,000 shares * $56 = $11,200,000; Total market value = $19,300,000. Weighted yield = (8,100,000/19,300,000 * 9%) + (11,200,000/19,300,000 * 7.8%) = 8.30%.

Adapt Electric Cars Has Two Preferred Stock Offerings