Answered

44,000 shares of common stock outstanding at a market price of $32 a share. The common stock will pay a $1.50 annual dividend and has a dividend growth rate of 3.5 percent. There are 7,500 shares of 9% preferred stock outstanding at a market price of $92 a share. The outstanding bonds mature in 11 years, have a total face value of $825,000, a coupon rate of 6.5 percent, a face value per bond of $1,000, and a market price of $989 each. The tax rate is 35 percent. What is the weight of equity in to be use to calculate the firm's WACC?

Answer :

Answer:

The weight of equity in to be use to calculate the firm's WACC is 0.48 or 48%

Explanation:

The weight of equity to be used in firm's WACC computation is market value of equity divided by the sum of market value of equity ,preferred stock and bonds.

Market value of equity=44,000*$32                   =$1,408,000.00  

Market value of preferred stock=7,500*$92      =$690,000

Market value of bonds=$825,000*$989/$1000=$815,925.00  

Sum of market values                                           =$ 2,913,925.00  

Weight of equity=market value of equity/ Sum of market values=$1,408,000.00/$2,913,925.00= 0.48 =48%

Other Questions