Answer:
Equity is 0.29
Debt is 0.64
Preferred stock 0.07
Explanation:
WACC=Ke*E/V+Kd*D/V*(1-t)*Kp*P/V
However, the requirements of the question is weights of the bonds,equity and preferred stock which are E/V,D/V and P/V respectively
E is the value of equity=2,000,000*$22=$44,000,000
D is the value of debt =100,000*$1000*96%=$96,000,000
P is the value of prefered stock=1,000,000*$10.50=$10,500,000
Total firm's finance(V) $150,500,000
E/V=$44,000,0000/$150,500,000=0.29
D/V=$96,000,0000/$150,500,000=0.64
p/v=$10,500,000/$150,500,000=0.07
Answer:
Common Stock = 29.2%
Preferred Stock = 7%
Bonds = 63.8%
Explanation:
Weights used in the WACC are based on the market value of the each capital option. Market value can be calculated by multiplying the numbers of shares or bonds with respective market value of each. Dividing these market values by the total capital will result in the weight of each capital.
Market Value
Common stock = Numbers of common stock shares x market value of each share = 2,000,000 x $22 = $44,000,000
Preferred stock = Numbers of common stock shares x market value of each share =1,000,000 x $10.5 = $10,500,000
Bond = Numbers of Bonds x market value of Bond =100,000 x ( $1,000 x 96% ) = $96,000,000
Weights = Market value / Total Capital
Total Capital = $44,000,000 + $10,500,000 + $96,000,000 = $150,500,000
Common Stock = $44,000,000 / $150,500,000 = 0.292 = 29.2%
Preferred Stock = $10,500,000 / $150,500,000 = 0.07 = 7%
Bonds = $96,000,000 / $150,500,000 = 0.638 = 63.8%
