OMG Inc. has 5 million shares of common stock outstanding, 4 million shares of p
ID: 2804129 • Letter: O
Question
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 $15 per share, the preferred shares sell for $14 per share, and the bonds sell for 109 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.)
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 $15 per share, the preferred shares sell for $14 per share, and the bonds sell for 109 percent of par.
Explanation / Answer
Total value of common stock=(5*15)=$75million
Total value of preferred stock=(4*14)=$56million
Total value of bonds=6000*(1000*109%)=$6.54million
Total=$137.54million
Hence weight for preferred stock=(56/137.54)=40.72%(Approx).
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