WhackAmOle has 4 million shares of common stock outstanding, 3.0 million shares
ID: 2741382 • Letter: W
Question
WhackAmOle has 4 million shares of common stock outstanding, 3.0 million shares of preferred stock outstanding, and 95,000 bonds. Assume the common shares are selling for $63 per share, the preferred shares are selling for $52.00 per share, and the bonds are selling for 103 percent of par.
What would be the weights used in the calculation of WhackAmOle’s WACC? (Do not round intermediate calculations and round your answers to 2 decimal places.)
WhackAmOle has 4 million shares of common stock outstanding, 3.0 million shares of preferred stock outstanding, and 95,000 bonds. Assume the common shares are selling for $63 per share, the preferred shares are selling for $52.00 per share, and the bonds are selling for 103 percent of par.
Explanation / Answer
The ideal weights used in calculation of WAC should be that based on market value.
Number outstanding
Unit market value
Market value
Common stock
4,000,000
$ 63
$ 252,000,000
Preferred stock
3,000,000
$ 52
$ 156,000,000
Bonds
95,000
$ 1,030
$ 97,850,000
$ 505,850,000
Market value weights = Market value/ Total market value
Equity weight = $252,000,000/$505,850,000 = 49.82%
Preferred stock weight = $156,000,000/$505,850,000 = 30.84%
Debt = $97,850,000/$505,850,000 = 19.34%
Number outstanding
Unit market value
Market value
Common stock
4,000,000
$ 63
$ 252,000,000
Preferred stock
3,000,000
$ 52
$ 156,000,000
Bonds
95,000
$ 1,030
$ 97,850,000
$ 505,850,000
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