FarCry Industries a maker of telecommunications equipment ha

FarCry Industries, a maker of telecommunications equipment, has 5 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 20,000 bonds. Suppose the common shares are selling for $25 per share, the preferred shares are selling for $13.50 per share, and the bonds are selling for 97 percent of par. What would be the weight used for equity in the computation of FarCry’s WACC?

Solution

Total value of common stock=(5*25)=$125million

Total value of preferred stock=(2*13.5)=$27million

Total value of bonds=20000*(1000*97%)=$19.4million

Total value =$171.4million

Hence weight of equity=$125million/$171.4million

=0.7293(Approx)(or 72.93%(Approx).