Question

Carrie D's has 6.0 million shares of common stock outstanding, 3.0 million shares of preferred stock outstanding, and 20.00 thousand bonds. If the common shares are selling for $29.10 per share, the preferred share are selling for $29.00 per share, and the bonds are selling for 108.90 percent of par, what would be the weight used for equity in the computation of Carrie D's WACC? Multiple Choice Ο 33.33% Ο 61.61% Ο 66.52% Ο 66.67%

Answer 1

Particulars Market value $21,780,000 $87,000,000 $174,600,000 $283,380,000 Debt Preferred stock common stock Answer: 61.61% [174600000/283380000]

Answer 2

SOLUTION :

First Part :

Total capital 

= Equity + PS + Debt

= 6000000 * 29.10 + 3000000*29.00 + 20.00 *1000 * 108.90/100*1000

= 174600000 + 87000000 + 21780000

= 283380000 ($)

So, weight of equity for WACC calculation :

= Equity value / Total capital

= 174600000 / 283380000

= 0.6140 = 61.61 % = 2nd Option  61.61%  (ANSWER).

2nd Part :

Total capital 

= Equity + PS + Debt

= 6300000 * 29.40 + 3300000*16.80 + 23.00 *1000 * 96.87/100*1000

= 185220000 + 55572000 + 22280100

= 263072100 ($)

So, weight of equity for WACC calculation :

= Equity value / Total capital

= 185220000 / 263072100

= 0.7041 = 70.41% = 3rd Option  70.44%  (ANSWER).