Question

Carrie D's has 6 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $15 per share, the preferred shares are selling for $28 per share, and the bonds are selling for 109 percent of par, what would be the weight used for equity in the computation of Carrie D's WACC?
(A) 33.33 percent

(B) 57.36 percent

(C) 61.64 percent

(D) 75.00 percent

Answer 1

Answer:

(B) 57.36 percent

Explanation:

Common Stock = 60,00,000x$15

                           = $9,00,00,000

Preferred Stock = 20,00,000x$28

                           = $5,60,00,000

Debt = 10,000x$1,000x109%

         = $1,09,00,000

Total Market Value = $5,60,00,000 + $1,09,00,000

                                 = $15,69,00,000

Weight of Equity = [Market Value of Equity/Total Market Value]x100  

                            = [$9,00,00,000/$15,60,00,000]x100

                            = 57.36%

Therefore, The weight used for equity in the computation of Carrie D's WACC would be 57.36%