An analyst has obtained the following information about Maudite Brewers Co.: Book value of assets $25,000; book value of common equity $10,000; book value of preferred shares $5,000.The company has 4,000 common shares outstanding which are currently trading at $5 per share.The company has 3,000 preferred shares outstanding which are currently trading at $2 per share.The yield on the debt equals the coupon rate.The weights used to determine the weighted average cost of capital are:
Common Equity: Preferred Equity: Debt:
A) 55.56% 16.67% 27.77%
B) 40% 20% 40%
C) 80% 10% 10%
D) Cannot be determined because we need the market value of debt.

Question

Quizplus · Accepted Answer

MV of each component: 4,000*5 = $20,000,3,000*2 = $6,000,$10,000
$20,000/$36,000 = 55.56%; 16.67%; 27.77%

An Analyst Has Obtained the Following Information About Maudite Brewers