Team Sports has 4.3 million shares of common stock outstanding, 2.3 million shar

Question

Team Sports has 4.3 million shares of common stock outstanding, 2.3 million shares of preferred stock outstanding, and 23 thousand bonds. If the common shares are selling for $3.30 per share, the preferred share are selling for $15.3 per share, and the bonds are selling for 98.97 percent of par, what would be the weight used for equity in the computation of Team's WACC?

Team Sports has 4.3 million shares of common stock outstanding, 2.3 million shares of preferred stock outstanding, and 23 thousand bonds. If the common shares are selling for $3.30 per share, the preferred share are selling for $15.3 per share, and the bonds are selling for 98.97 percent of par, what would be the weight used for equity in the computation of Team's WACC?

Explanation / Answer

Hi,

Please find the answer as follows:

Value of Equity = Common Stock Outstanding*Current Selling Price = 4300000*3.30 = 14190000

Value of Preferred Stock = Preferred Stock Outstanding*Current Selling Price = 2300000*15.3 = 35190000

Value of Bonds = Number of Bonds*Current Selling Price = 23000*1000*98.97% = 22763100

Total Value of the Company = 14190000 + 35190000 + 22763100 = 72143100

Weight of Equity = Value of Equity/Total Value of the Company*100 = 14190000/72143100*100 = 19.67%

Option C (19.67%) is correct.

Thanks.

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