Tom and Jerry\'s has 3.5 million shares of common stock outstanding, 3.5 million
ID: 2619967 • Letter: T
Question
Tom and Jerry's has 3.5 million shares of common stock outstanding, 3.5 million shares of preferred stock outstanding, and 25.00 thousand bonds. If the common shares are selling for $14.50 per share, the preferred share are selling for $11.50 per share, and the bonds are selling for 99.85 percent of par, what would be the weight used for equity in the computation of Tom and Jerry's WACC?
Tom and Jerry's has 3.5 million shares of common stock outstanding, 3.5 million shares of preferred stock outstanding, and 25.00 thousand bonds. If the common shares are selling for $14.50 per share, the preferred share are selling for $11.50 per share, and the bonds are selling for 99.85 percent of par, what would be the weight used for equity in the computation of Tom and Jerry's WACC?
Explanation / Answer
Weights to be used for equity shares(common stock):
Total equity shares(common stock): 3,500,000,share price =$14.5,total value=(35,00,000*14.5)=50750000
Total preference stock:3,500,000,shre price=$11.5,total value=(3500000*11.5)=40250000
Total bonds: 25000,Par value=$ 100, bond price=$99.85,total bond value=(25000*99.85)=2496250
Weight of equity=(50750000)/(5075000+40250000+2496250)=50,750,000/93,496,250=0.5428 or 54.28(Answer)