The calculation of WACC involves calculating the weighted average of the require

Question

The calculation of WACC involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firm's overall capital structure. r_p is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation. Avery Co. has $3.9 million of debt, $2.5 million of preferred stock, and $2.1 million of common equity. What would be its weight on common equity? 0.25 0.23 0.32 0.26

Explanation / Answer

Weight on Common Equity is .25 Statement showing computations Particulars Amount Weight = Amt/Total Amt Debt      3,900,000.00                                              0.46 Preferred Stock      2,500,000.00                                              0.29 Common Equity      2,100,000.00                                              0.25 Total      8,500,000.00                                              1.00

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