Question

Town Crier has 10.8 million shares of common stock outstanding, 2.8 million shares of preferred stock outstanding, and 18.00 thousand bonds. If the common shares are selling for $28.80 per share, the preferred share are selling for $16.30 per share, and the bonds are selling for 96.92 percent of par, what would be the weight used for equity in the computation of Town Crier's WACC?

Answer 1

83.14%

Step-by-step explanation:

Always keep in mind that market values are used when calculating weights for weighted average cost of capital (WACC):

Total equity market value = 10.8 x 28.8 = 311.04 mil

Total preferred equity market value = 2.8 x 16.3 = 45.64 mil

Total bond market value = 18.0 x 1,000 x 96.92 = 17.45 mil

Total firm value = 311.04 + 45.64 + 17.45 = 374.13 mil

Common equity weight = Total equity market value/Total firm value = 311.04/374.13 = 83.14%