A. Denver Interiors has 67,000 shares of common stock outstanding at a price per

Question

A.

Denver Interiors has 67,000 shares of common stock outstanding at a price per share of $39. The firm also has 23,500 shares of preferred stock outstanding at a price per share of $48. There are 2,200 outstanding bonds with a face value of $1,350 and a price quote of 100.1. What is the capital structure weight of the preferred stock?

17.33 percent

15.11 percent

16.80 percent

17.62 percent

B.

Meiston Press has a debt-equity ratio of .80. The pre-tax cost of debt is 8.50 percent and the cost of equity is 13.1 percent. What is the firm’s weighted average cost of capital (WACC) if the tax rate is 34 percent?

10.55 percent

10.92 percent

9.77 percent

11.80 percent

Denver Interiors has 67,000 shares of common stock outstanding at a price per share of $39. The firm also has 23,500 shares of preferred stock outstanding at a price per share of $48. There are 2,200 outstanding bonds with a face value of $1,350 and a price quote of 100.1. What is the capital structure weight of the preferred stock?

Explanation / Answer

weight of preferred shares - 16.80%

WACC = (0.80*8.5*0.66 + 13.10)/(0.80 + 1) = 9.77 percent

Amount weight equity               2,613,000.00 0.3894 debt               2,970,000.00 0.4426 preferred shares               1,128,000.00 0.16808

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