Question

Florida groves has a $380,000 bond issue outstanding that is selling at 97.4 percent of face value. The firm also has 2600 shares of preferred stock valued at $61 a share and 37,500 shares of common stock valued at $19 a share. What weight should be assigned to the common stock when computing the weighted average cost of capital?
please do not use excel or word. choose one of the option
a) 55,75 percent
b) 62.20 percent
c) 58.75 percent
d) 61.03 percent
e) 57.40 percent

Answer 1

Answer:

Maket value of the comapny                                $

Market value of bond ($380,000 x 97,4/100)    370,120

Market value of preferred stocks (2,600 x $61) 158,600

Market value of common stocks (37,500 x $19) 712,500

Market value of the company                              1,241,220

Weight to assign to common stocks = $712,500/$1,241,220 x 100

                                                            = 57.40%

The correct answer is E

Explanation:

The market value of each stock is the number of stocks issued multiplied by current market price. Market value of the company is the aggregate of market value of bond, market value of preferred stocks and market value of common stocks. The weight to be assigned to common stocks is the percentage of market value of common stocks to market value of the company.