Question

Solar Shades has 6.4 million shares of common stock outstanding, 5.4 million shares of preferred stock outstanding, and 24 thousand bonds. If the common shares are selling for $29.50 per share, the preferred share are selling for $31.40 per share, and the bonds are selling for 104.86 percent of par, what would be the weight used for equity in the computation of Solar Shade's WACC?

54.13%

33.33%

49.23%

66.67%

Answer 1

52.32%

Step-by-step explanation:

The computation of the weighatge of equity is shown below:

= Equity value ÷ Total firm value

where,

Equity value = 6,400,000 × $29.50 = $188,800,000

Preferred stock value = 5,400,000 × $31.4 = $169,560,000

Bonds value = 24,000 × $104.86 = $2,516,640

Total = $360,876,640

Now put these values to the above formula

So, the value would equal to

= $188,800,000 ÷ $360,876,640

= 52.32%

This is the answer but the same is not provided in the given options