Question

OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares are selling for $19 per share, the preferred shares are selling for $28 per share, and the bonds are selling for 108 percent of par. What would be the weight used for equity in the computation of OMG's WACC? (Round your answer to 2 decimal places.)

Answer 1

Answer and Explanation:

The weight of equity in the computation of OMG’s WACC can be calculated as follows:

First, we need to calculate the market value of the common stock, preferred stock, and bonds. The market value of common stock is 6 million shares * $19/share = $114 million. The market value of preferred stock is 5 million shares * $28/share = $140 million. The market value of bonds is 7,000 bonds * $1,000/bond * 108