FarCry Industries, a maker of telecommunications equipment, has 26 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares sell for $15 per share, the preferred shares sell for $114.50 per share, and the bonds sell for 101% of par ($1000), what weight should you use for preferred stock in the computation of FarCry's WACC?
A) 28.52%
B) 27.51%
C) 26.24%
D) 22.25%

Question

Quizplus · Accepted Answer

The weight of preferred stock is calculated as the market value of preferred stock divided by the total market value of the firm's financing (equity, preferred stock, and debt). The market value of preferred stock is 1 million shares * $114.50. The market value of common stock is 26 million shares * $15. The market value of debt is 10,000 bonds * $1,010. Calculate each and find the weight of preferred stock.

FarCry Industries, a Maker of Telecommunications Equipment, Has 26 Million