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Sports Corp has 11.8 million shares of common stock outstanding, 6.8 million shares of preferred stock...

Sports Corp has 11.8 million shares of common stock outstanding, 6.8 million shares of preferred stock outstanding, and 2.8 million bonds. If the common shares are selling for $26.8 per share, the preferred shares are selling for $14.3 per share, and the bonds are selling for 96.82 percent of par, what would be the weight used for equity in the computation of Sports's WACC? 55.14% 10.12% 33.33% 11.26%

Par Value 1000

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Expert Solution

Equity:

Number of Common Stock outstanding = 11.8 million
Current Price per share = $26.8

Value of Equity = Number of Common Stock outstanding * Current Price per share
Value of Equity = 11.8 million * $26.8
Value of Equity = $316.24 million

Preferred Stock:

Number of Preferred Stock outstanding = 6.8 million
Current Price per share = $14.3

Value of Preferred Stock = Number of Preferred Stock outstanding * Current Price per share
Value of Preferred Stock = 6.8 million * $14.3
Value of Preferred Stock = $97.24 million

Debt:

Number of Bonds outstanding = 2.8 million
Face Value of bond = $1,000
Current Price of bond = 96.82% * $1,000
Current Price of bond = $968.20

Value of Debt = Number of Bonds outstanding * Current Price of bond
Value of Debt = 2.8 million * $968.20
Value of Debt = $2,710.96 million

Total Value of Firm = Value of Equity + Value of Preferred Stock + Value of Debt
Total Value of Firm = $316.24 million + $97.24 million + $2,710.96 million
Total Value of Firm = $3,124.44 million

Weight of Equity = Value of Equity / Total Value of Firm
Weight of Equity = $316.24 million / $3,124.44 million
Weight of Equity = 10.12%

So, weight of equity for computation of WACC is 10.12%

jeff jeffy answered 2 hours ago
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