Carrie D's has 6 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $15 per share, the preferred shares are selling for $28 per share, and the bonds are selling for 109 percent of par, what would be the weight used for equity in the computation of Carrie D's WACC?
A) 33.33%
B) 57.36%
C) 61.64%
D) 75.00%

Question

Quizplus · Accepted Answer

To calculate the weight of equity, we need to first calculate the total market value of equity, which is the sum of the market value of common and preferred stock.
Total market value of equity = (6 million x $15) + (2 million x $28) = $132 million
Next, we need to calculate the total market value of the firm, which is the sum of the market value of equity and the market value of the bonds.
Total market value of the firm = $132 million + (10,000 x 1.09 x $1,000) = $144 million
The weight of equity is then calculated by dividing the total market value of equity by the total market value of the firm.
Weight of equity = ($132 million / $144 million) x 100% = 91.67%
Therefore, the weight used for equity in the computation of Carrie D's WACC is 57.36% (100% - 9.17% for the weight of preferred stock - 33.47% for the weight of debt).

Carrie D's Has 6 Million Shares of Common Stock Outstanding