OMG Inc. has 7 million shares of common stock outstanding, 5 million shares of p
ID: 2743106 • Letter: O
Question
OMG Inc. has 7 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 4,000 bonds. Suppose the common shares sell for $16 per share, the preferred shares sell for $15 per share, and the bonds sell for 109 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.)
OMG Inc. has 7 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 4,000 bonds. Suppose the common shares sell for $16 per share, the preferred shares sell for $15 per share, and the bonds sell for 109 percent of par.
Explanation / Answer
Market value of total capital=Market value of common equity+Market value of preferred equity+Market value of bond
Market value of total capital=7000000*16 +5000000*15+4000*109=187436000
Proportion of preferred equity=Market value of preferred equity/Market value of total capital=75000000/187436000=40%
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