OMG INC has 6 million shares of common stock outstanding 5 million shares of preferred stock...

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OMG INC has 6 million shares of common stock outstanding 5 million shares of preferred stock...

OMG INC has 6 million shares of common stock outstanding 5 million shares of preferred stock outstanding and 7000 bonds. Suppose the common shares are selling for $28 per share the preferred shares are selling for $27 per share and the bonds are selling for $108 percent of par.

What weight should you use for debt in the computation of OMGs WACC?

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Answer 1

Answer #1

value of preferred stock

= 5 million * 27

= 135 million

value of equity = 6 million * 28

= 168 million

value of debt = 7000 * 1000 * 108%

= 7.56 million

weight of debt = value of debt/(total value of firm)

= 7.56/(135+168+7.56)

= 0.0243431221

= 2.43%

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Answer 2

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