Question

JackITs has 5.8 million shares of common stock outstanding, 1.8 million shares of preferred stock outstanding, and 28.00 thousand bonds. If the common shares are selling for $28.80 per share, the preferred shares are selling for $14.30 per share, and the bonds are selling for 97.92 percent of par, what would be the weight used for equity in the computation of JackIT's WACC?
 33.33%
 75.86%
 76.04%
 66.67%

Answer 1

Answer:

weight of equity = 75.86 %

so correct option is B) 75.86%

Explanation:

given data

common stock outstanding = 5.8 million

preferred stock outstanding = 1.8 million

bonds = 28.00 thousand

preferred shares selling = $14.30 per share

bonds selling = 97.92 %

to find out

weight used for equity

solution

we get here Value of common shares that is express as

Value of common shares = 5.8 ×28.8

Value of common shares = $167.04 million

and

now we get Value of preferred stock will be

Value of preferred stock = 1.8 × 14.30

Value of preferred stock = $25.74 million

and

here Value of debt will be

Value of debt = 28000 × (1000 × 97.92%)

Value of debt = $27.4176 million

so total value we be

total value = $167.04 million + $25.74 million + $27.4176 million

Total value = $220.1976 million

so weight of equity is here as

weight of equity = $\frac{167.04}{220.1976}$

weight of equity = 75.86 %

so correct option is B) 75.86%