Town Crier has 10.8 million shares of common stock outstanding, 2.8 million shares of preferred stock outstanding, and 18.00 thousand bonds. If the common shares are selling for $28.80 per share, the preferred share are selling for $16.30 per share, and the bonds are selling for 96.92 percent of par, what would be the weight used for equity in the computation of Town Crier's WACC?

Question

Business

Justice Maddox

20 April, 21:29

Town Crier has 10.8 million shares of common stock outstanding, 2.8 million shares of preferred stock outstanding, and 18.00 thousand bonds. If the common shares are selling for $28.80 per share, the preferred share are selling for $16.30 per share, and the bonds are selling for 96.92 percent of par, what would be the weight used for equity in the computation of Town Crier's WACC?

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Krista Khan · Answer 1

83.14%

Explanation:

Always keep in mind that market values are used when calculating weights for weighted average cost of capital (WACC):

Total equity market value = 10.8 x 28.8 = 311.04 mil

Total preferred equity market value = 2.8 x 16.3 = 45.64 mil

Total bond market value = 18.0 x 1,000 x 96.92 = 17.45 mil

Total firm value = 311.04 + 45.64 + 17.45 = 374.13 mil

Common equity weight = Total equity market value/Total firm value = 311.04/374.13 = 83.14%