FarCry Industries, a maker of telecommunications equipment, has 5 million shares

Question

FarCry Industries, a maker of telecommunications equipment, has 5 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 20,000 bonds. Suppose the common shares sell for $29 per share, the preferred shares sell for $15.50 per share, and the bonds sell for 98 percent of par.

What weight should you use for preferred stock in the computation of FarCry’s WACC? (Round your answer to 2 decimal places.)

FarCry Industries, a maker of telecommunications equipment, has 5 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 20,000 bonds. Suppose the common shares sell for $29 per share, the preferred shares sell for $15.50 per share, and the bonds sell for 98 percent of par.

Explanation / Answer

Total value of common stock=(5*29)=$145million

Total value of preferred stock=(2*15.5)=$31million

Total value of bonds=20000*(1000*98%)=$19.6million

Total value =$195.6million

Hence weight of preferred stock=($31million/$195.6million)

=15.85%(Approx).

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