OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of p

Question

OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares sell for $18 per share, the preferred shares sell for $17 per share, and the bonds sell for 108 percent of par.

What weight should you use for preferred stock in the computation of OMG’s WACC? (Round your answer to 2 decimal places.)

PLEASE SHOW WORK,

THANKS!

OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares sell for $18 per share, the preferred shares sell for $17 per share, and the bonds sell for 108 percent of par.

Explanation / Answer

Weightage of preferred stock = $17 * 5,000,000 / ($18 * 6,000,000 + $17 * 5,000,000 + 108% * $1,000 * 7,000)

= 0.42

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