FarCry Industries, a maker of telecommunications equipment, has 2 million shares

Question

FarCry Industries, a maker of telecommunications equipment, has 2 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $14.50 per share, and the bonds are selling for 98 percent of par, what would be the weight used for equity in the computation of FarCry's WACC

Using the computation for equity weight given in equation 11-1:

Can you explain by you have to X1000 ? and how do i calculate the component cost of equity and the tax rate? explain step-by step.

=54m / (54m + 14.5m + 9800x1000) where does the 1000 .

Explanation / Answer

Using the computation for equity weight given in equation 11-1:

E/E+P+D=(2,000,000+$27)/(2,000,000$27+1,000,000×$14.50+10000×.98×1000)

Here 1000 is par value of a bond as it is selling fir 98%.so .98×1000×10000

=$54,000,000/$78,300,000

=.6897 or68.97%

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