FarCry Industries, a maker of telecommunications equipment, has 3 million shares

Question

FarCry Industries, a maker of telecommunications equipment, has 3 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. Suppose the common shares sell for $29 per share, the preferred shares sell for $15.50 per share, and the bonds sell for 98 percent of par.

What weight should you use for preferred stock in the computation of FarCry’s WACC? (Round your answer to 2 decimal places.)

FarCry Industries, a maker of telecommunications equipment, has 3 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. Suppose the common shares sell for $29 per share, the preferred shares sell for $15.50 per share, and the bonds sell for 98 percent of par.

Explanation / Answer

weight used = 13.80%

amount of preferred stock / total amount of all sources *100

the following table shows it.

Source amount weight equity (3 million * $29)=>$87 million preferred (1 million *$15.50)=>$15.50 million ($15.50 million / $112.30 million)*100=>13.80% Bonds (10,000 * $1,000 *98%)=>$9.8 million TOtal $112.3 million

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