Calculate the weighted average cost of preference shares and ordinary shares if there are: 1 million preference shares with market value of $2.50 each and an opportunity cost of 10.8%;10 million ordinary shares with market value of $4.50 each and an opportunity cost of 16.5%.
A)15.4%
B)16.9%
C)16.2%
D)None of the given options.

Question

Quizplus · Accepted Answer

Weighted average cost of preference shares = (1,000,000 x $2.50 x 10.8%) / (1,000,000 x $2.50) = 10.8%
Weighted average cost of ordinary shares = (10,000,000 x $4.50 x 16.5%) / (10,000,000 x $4.50) = 16.5%
Therefore, the weighted average cost of preference shares and ordinary shares = (10.8% + 16.5%) / 2 = 16.2%.
Hence, the correct choice is C.

Calculate the Weighted Average Cost of Preference Shares and Ordinary