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Tom and Jerry's has 2.4 million shares of common stock outstanding, 2.4 million shares of preferred...

Tom and Jerry's has 2.4 million shares of common stock outstanding, 2.4 million shares of preferred stock outstanding, and 14.00 thousand bonds. If the common shares are selling for $13.40 per share, the preferred share are selling for $10.40 per share, and the bonds are selling for 99.96 percent of par, what would be the weight used for equity in the computation of Tom and Jerry's WACC?

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Answer #1

Total value of Common stock = Price per share * Number of shares of common stock outstanding

= $13.40 * 2.4 million = $32.16 million = $32,160,000

Total value of Preferred stock = Price per share * Number of shares of preferred stock outstanding

= $10.40 * 2.4 million = $24.96 million = $24,960,000

Bonds are selling for 99.96 percent of par Par Value = $1000

Total value of Bonds = Price per bond * Number of Bonds

= (0.9966 * 1000) * 14000

= 996.60 *14000 = $13,952,400

Weight used for equity = Total value of Common stock / ( Total value of Common stock + Total value of Preferred stock + Total value of Bonds )

Weight used for equity = $32,160,000 / ( $32,160,000 + $24,960,000 + $13,952,400)

Weight used for equity = $32,160,000 / $71,072,400

Weight used for equity = 0.45249 = 45.25%

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