FarCry Industries, a maker of telecommunications equipment, has 6 million shares

Question

FarCry Industries, a maker of telecommunications equipment, has 6 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 45,000 bonds. Suppose the common shares sell for $29 per share, the preferred shares sell for $15.50 per share, and the bonds sell for 99 percent of par.

What weight should you use for preferred stock in the computation of FarCry’s WACC?

FarCry Industries, a maker of telecommunications equipment, has 6 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 45,000 bonds. Suppose the common shares sell for $29 per share, the preferred shares sell for $15.50 per share, and the bonds sell for 99 percent of par.

Explanation / Answer

Weight we should use for preferred stock is .2210 Capital Structure weights on a market value basis Particulars Number Market Value Face Value Weights Common Stock      6,000,000.00                                       29.00      174,000,000.00                           0.6202 Preferred Stock      4,000,000.00                                       15.50        62,000,000.00                           0.2210 Bonds            45,000.00                                    990.00        44,550,000.00                           0.1588      280,550,000.00                                1.00

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