FarCry Industries, a maker of telecommunications equipment, has 6 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $15 per share, and the bonds are selling for 119 percent of par ($1,000), what weight should you use for debt in the computation of FarCry's WACC?

Question

Business

Kimberly Haney

5 May, 22:58

FarCry Industries, a maker of telecommunications equipment, has 6 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $15 per share, and the bonds are selling for 119 percent of par ($1,000), what weight should you use for debt in the computation of FarCry's WACC?

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Answers (1)

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Jaiden Schaefer · Answer 1

Market value of common stock (6,000,000 x $27) = $162,000,000

Market value of preferred stock (1,000,000 X $15) = $15,000,000

Market value of debt (10,000 x $1,190) = $11,900,000

Market value of the company $188,900,000

Weight of debt in the capital structure

= $11,900,000/$188,900,000 x 100

= 6.299% = 6.30%

Explanation:

In this case, there is need to calculate the market value of the company, which is the aggregate of market value of common stock, market value of preferred stock and market value of debt. The market value of each stock is obtained by multiplying the number of units outstanding by the current market price per stock. The weight of debt is determined by dividing the market value of debt by the market value of the company.