OMG Inc. has 7 million shares of common stock outstanding, 5 million shares of p
ID: 2787485 • 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 are selling for $30 per share, the preferred shares are selling for $29 per share, and the bonds are selling for 109 percent of par.
What weight should you use for debt in the computation of OMG’s WACC?
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 are selling for $30 per share, the preferred shares are selling for $29 per share, and the bonds are selling for 109 percent of par.
Explanation / Answer
Total amount of equity= 7000000×30 Total amount of equity= 210000000 Total amount of preferred stock= 5000000×29 Total amount of preferred stock= 145000000 Total amount of Debt 4000×1090 Total amount of Debt 4360000 Total capital= Total amount of equity+Total amount of prefered stock +Total amount of debt Total capital= 359360000 Weight of debt= Market value of debt/total capital 4360000/359360000 Weight of debt= 1.213%
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