Question

Sports Corp. has 10 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 1 million bonds. If the common shares are selling for $25 per share, the preferred shares are selling for $12.50 per share, and the bonds are selling for 97 percent of par, what would be the weight used for equity in the computation of Sports' WACC?

(A) 18.59%
(B) 19.49%
(C) 62.50%
(D) 79.75%

Answer 1

C:62.50 Hope this Helpss!!

Answer 2

The answer is C. 62.50%.

Step-by-step explanation:

The value of common share: 10,000,000 x 25 = $250,000,000;

The value of preferred stock = 5,000,000 x 12.5 = $62,500,000;

The value of bond = 1,000,000 *100 * 97% = $97,000,000;

Total capital value = The value of common share + The value of preferred stock + The value of bond = 250,000,000 + 62,500,000 + 97,000,000 = $409,500,000.

=> The weight used for equity in the computation of Sports' WACC = 250,000,000/409,500,000 = 62.50%.

So, the answer is C. 62.50%.