Pumpkin Pie Industries has 5 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $50 per share, the preferred shares are selling for $31 per share, and the bonds are selling for 98 percent of par ($1000), what would be the weights used in the calculation of Pumpkin Pie's WACC for common stock, preferred stock, and bonds, respectively?
A) 33.33%, 33.33%, 33.33%
B) 83.19%, 16.64%, 0.17%
C) 85.97%, 10.67%, 3.38%
D) 27.93%, 17.32%, 54.75%

Question

Quizplus · Accepted Answer

The market value of common stock is $250 million (5 million shares * $50), preferred stock is $31 million (1 million shares * $31), and bonds are $9.8 million (10,000 bonds * $980). The total market value is $290.8 million. The weights are calculated as follows: common stock = $250 million / $290.8 million = 85.97%, preferred stock = $31 million / $290.8 million = 10.67%, and bonds = $9.8 million / $290.8 million = 3.38%.

Pumpkin Pie Industries Has 5 Million Shares of Common Stock