OMG Inc. has 4 million shares of common stock outstanding, 3 million shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling for $21 per share, the preferred shares are selling for $10 per share, and the bonds are selling for 111% of par ($1000), what weight should you use for debt in the computation of OMG's WACC?
A) 32.74%
B) 29.86%
C) 25.79%
D) 21.86%

Question

Quizplus · Accepted Answer

To find the weight of debt, calculate the market value of each component:  - Common stock: 4 million shares * $21 = $84 million  - Preferred stock: 3 million shares * $10 = $30 million  - Bonds: 50,000 bonds * $1,110 (111% of $1,000) = $55.5 million  Total market value = $84 million + $30 million + $55.5 million = $169.5 million  Weight of debt = $55.5 million / $169.5 million = 32.74%

OMG Inc Has 4 Million Shares of Common Stock Outstanding, 3