OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock...

OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares sell for $17 per share, the preferred shares sell for $16 per share, and the bonds sell for 108 percent of par. What weight should you use for preferred stock in the computation of OMG’s WACC? (Round your answer to 2 decimal places.)

Expert Solution

Market value of common stock= 6,000,000*$17

= $102,000,000

Market value of preference shares= 5,000,000*$16

= $80,000,000

Price of bond= 1,000 *108%= $1,080

Market value of debt= 7,000*$1,080

= $7,560,000

Total firm value= $102,000,000 + $80,000,000 + $7,560,000

= $189,560,000

Market weight of preferred stock= $80,000,000/ $189,560,000*100

= 0.4220*100

= 42.20%.

In case of any query, kindly comment on the solution

jeff jeffy answered 3 months ago

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OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock...

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