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. is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation. Bryant Co. has $2.3 million of debt, $1.5 million of preferred stock, and $1.8 million of common equity. What would be its weight on common equity? 0.32 0.24 0.22 0.30

Explanation / Answer

Solution for question 1

Rps is the symbol that represents the cost of preferred stock in calculation of Weightage average cost of capital.

Solution for question 2

Value of debt in capital Stricture = $2.3 million

Value of equity in capital Stricture = $1.8 million

Value of preferred stock in capital Stricture = $1.5 million

Total value of capital = $2.3 million + $1.8 million + $1.5 million

                                   = $5.6 million

Total value of capital is $5.6 million.

Weight of equity in capital structure = $1.8 million / $5.6 million

                                                           = 32.14%

Weight of equity in capital structure is 32.14%.

Hence, option (A) is correct answer.

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