Town Crier has 10 million shares of common stock outstanding. 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $28 per share the preferred shares are selling for $15.50 per share, and the bonds are selling for 97 percent of par, what would be the weight used for debt in the computation of Town Crier's WACC? Multiple Choice O

A. 30 percent

B. 312 percent

C. 3.20 percent

D. 3.33 percent

Question

Business

Malia Walker

2 July, 08:05

Town Crier has 10 million shares of common stock outstanding. 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $28 per share the preferred shares are selling for $15.50 per share, and the bonds are selling for 97 percent of par, what would be the weight used for debt in the computation of Town Crier's WACC? Multiple Choice O

A. 30 percent

B. 312 percent

C. 3.20 percent

D. 3.33 percent

+5

Answers (1)

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Crystal · Answer 1

3.02%

Explanation:

The computation of the weightage of debt is shown below:

= Debt value : total firm value

where,

Debt value would be

= 10,000 * $1,000 * 0.97

= $9.7 million

We assume the par value is $1,000

Equity value

= 10 million shares * $28

= $280 million

And, the preferred shares would be

= 2 million shares * $15.50

= $31 million

So, the total firm value would be

= $9.7 million + $280 million + $31 million

= $320.70 million

Now the weightage would be

= $9.7 million : $320.70 million

= 3.02%