Question

FarCry Industries, a maker of telecommunications equipment, has 6 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 45,000 bonds. Suppose the common shares sell for $27 per share, the preferred shares sell for $14.50 per share, and the bonds sell for 99 percent of par. What weight should you use for preferred stock in the computation of FarCry’s WACC? (Round your answer to 2 decimal places.)

Weight used % ____

Answer 1

Total Capital value = price of Preferred Equity*Shares of Preferred Equity + price of Common Equity*Shares of Common Equity + price of Debt*Shares of Debt

=14.5*6000000+27*4000000+990*45000

=239550000

Weight of Preferred Equity = price of Preferred Equity*Shares of Preferred Equity/Total Capital Value

= 87000000/239550000

=0.3632 = 36.32%