BetterPie Industries has 6 million shares of common stock outstanding, 4 million

Question

BetterPie Industries has 6 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 15,000 bonds. Assume the common shares are selling for $45 per share, the preferred shares are selling for $22.50 per share, and the bonds are selling for 98 percent of par.

What would be the weights used in the calculation of BetterPie’s WACC? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

BetterPie Industries has 6 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 15,000 bonds. Assume the common shares are selling for $45 per share, the preferred shares are selling for $22.50 per share, and the bonds are selling for 98 percent of par.

Explanation / Answer

Assuming the face value of debt as 1000

If the face value of debt is different from 1000, in the calcualtion for market value of debt, calculate using the new face value

Current Market Value of Debt=15000*Face Value*0.98==15000*1000*0.98/1000000=14.7 million

Current Market Value of Stock=6*45=270 million

Current Market Value of Preferred Shares=4*22.5=90 million

So, Equity weight=270/(270+14.7+90)=0.720576=72.0576%

Debt weight=14.7/(270+14.7+90)=0.0392=3.92%

Preferred Stock weight=90/(270+14.7+90)=24.019%

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