The Auto Group has 1,000 bonds outstanding that are selling for $850 each. The c
ID: 2636171 • Letter: T
Question
The Auto Group has 1,000 bonds outstanding that are selling for $850 each. The company also has 8,400 shares of preferred stock at a market price of $70 each. The common stock is priced at $65 a share and there are 30,000 shares outstanding. What is the weight of the preferred stock as it relates to the firm's weighted average cost of capital?
The Auto Group has 1,000 bonds outstanding that are selling for $850 each. The company also has 8,400 shares of preferred stock at a market price of $70 each. The common stock is priced at $65 a share and there are 30,000 shares outstanding. What is the weight of the preferred stock as it relates to the firm's weighted average cost of capital?
Explanation / Answer
weight of the preferred stock = 8400 * 70/ ( 1000 * 850 + 8400 * 70 + 30000 *65 )
= 588000/3288000 = 0.1788
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