Solar Shades has 8.8 million shares of common stock outstanding, 4.8 million shares of preferred stock...

Solar Shades has 8.8 million shares of common stock outstanding, 4.8 million shares of preferred stock outstanding, and 18 thousand bonds. If the common shares are selling for $13.80 per share, the preferred share are selling for $30.80 per share, and the bonds are selling for 104.92 percent of par, what would be the weight used for equity in the computation of Solar Shade's WACC?

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Expert Solution

Number of common stock outstanding = 8,800,000
Current price per common stock = $13.80
Number of preferred stock outstanding = 4,800,000
Current price per preferred stock = $30.80
Number of bonds outstanding = 18,000
Par Value per bond = $1,000
Current price per bond = 104.92% * $1,000 = $1,049.20

Value of Common Stock = Number of common stock outstanding * Current price per common stock
Value of Common Stock = 8,800,000 * $13.80
Value of Common Stock = $121,440,000

Value of Preferred Stock = Number of preferred stock outstanding * Current price per preferred stock
Value of Preferred Stock = 4,800,000 * $30.80
Value of Preferred Stock = $147,840,000

Value of Bonds = Number of bonds outstanding * Current price per bond
Value of Bonds = 18,000 * $1,049.20
Value of Bonds = $18,885,600

Value of Firm = Value of Common Stock + Value of Preferred Stock + Value of Bonds
Value of Firm = $121,440,000 + $147,840,000 + $18,885,600
Value of Firm = $288,165,600

Weight of Common Stock = Value of Common Stock / Value of Firm
Weight of Common Stock = $121,440,000 / $288,165,600
Weight of Common Stock = 0.4214
Weight of Common Stock = 42.14%

So, weight of equity used for calculation of WACC is 42.14%

jeff jeffy answered 1 year ago

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