Paper Exchange has 80 million shares of common stock outstanding, 60 million shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling for $20 per share, the preferred shares are selling for $10 per share, and the bonds are selling for 105 percent of par, what would be the weight used for preferred stock in the computation of Paper's WACC?
A) 26.64 percent
B) 27.27 percent
C) 33.33 percent
D) 42.84 percent

Question

Quizplus · Accepted Answer

The weight used for preferred stock in the computation of Paper's WACC is 26.64 percent. This is calculated by dividing the market value of the preferred stock by the total market value of all securities. The market value of the preferred stock is $600 million (60 million shares x $10 per share). The total market value of all securities is $2.2 billion (80 million shares of common stock x $20 per share + 60 million shares of preferred stock x $10 per share + 50 thousand bonds x $1050 per bond).

Paper Exchange Has 80 Million Shares of Common Stock Outstanding