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Lore's Holding has 1,200 bonds issued that are selling for $ 990 each. The company also...

Lore's Holding has 1,200 bonds issued that are selling for $ 990 each. The company also has 2,500 preferred shares at a market price of $ 28 per share. Common stock is priced at $ 37 per share, and there are 28,000 shares outstanding. What is the weight of common shares? What is the weight that would be applied to the WACC?
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Answer #1

First we will calculate the value of bond, preferred stock and common stock as per below:

Value of stock = Total number of stocks . bonds outstanding * Price per stock / bond

Value of bond = 1200 * $990 = $1188000

Value of preferred stock = 2500 * $28 = $70000

Value of common stock = 28000 * $37 = $1036000

Total value of the portfolio = $1188000 + $70000 + $1036000 = $2294000

Next,we will calculate the weight of common stock by dividing the amount invested in common stock by the total value of the portfolio i.e. $2294000.:

Weight of Common stock: $1036000 / $2294000 * 100 = 45.16%

So, the weight that will be applied to WACC is 45.16%.

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