fin 305 ch 11 q 10 OMG Inc. has 5 million shares of common stock outstanding, 4
ID: 2717731 • Letter: F
Question
fin 305 ch 11 q 10
OMG Inc. has 5 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 6,000 bonds. Suppose the common shares sell for $18 per share, the preferred shares sell for $17 per share, and the bonds sell for 108 percent of par.
What weight should you use for preferred stock in the computation of OMG’s WACC? (Round your answer to 2 decimal places.)
What weight should you use for preferred stock in the computation of OMG’s WACC? (Round your answer to 2 decimal places.)
Explanation / Answer
Total value of company = value of common stock +value of preferred + value of debt
= (5,000,000 * 18 )+(4,000,000 * 17) +(6000*1080)
= 90,000,000 + 68,000,000+ 6,480,000
= $ 164,480,000
Weight of preferred stock = value of preferred stock / value of company
= 68,000,000 / 164,480,000
= .4134 or 41.34%
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