Question

22. An analyst has obtained the following information about the Velo Co.: book value of total assets, $27 000; book value of common equity, $10 000; book value of preferred stock, $5000; book value of current liabilities, $2000. The company has 4000 common shares outstanding which are currently trading at $5 per share, and 3000 preferred shares cur- rently trading at $2 per share. The yield to maturity on the long-term debt equals the cou pon rate. The weights for common equity, preferred equity and long-term debt, used to determine the firm's weighted-average cost of capital are, respectively: A) 55.5 %, 16.7 % and 27.8 % B) 40%: 20 % and 40 % C) 80%: 10 % and 10% D) 62.2 %, 14.5 % and 23.3 % E) Cannot be determined because the market value of debt is required.

Answer 1

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