OMG Inc. has 5 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 6,000 bonds. Suppose the common shares are selling for $16 per share, the preferred shares are selling for $25 per share, and the bonds are selling for 109 percent of par. What would be the weight used for equity in the computation of OMG's WACC?

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Business

Samson Mason

23 March, 08:03

OMG Inc. has 5 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 6,000 bonds. Suppose the common shares are selling for $16 per share, the preferred shares are selling for $25 per share, and the bonds are selling for 109 percent of par. What would be the weight used for equity in the computation of OMG's WACC?

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Ronald Arellano · Answer 1

The equity weight is 69.84%

Explanation:

Value: C + P + B

Common Equity:

5,000,000 shares x 16 = 80,000,000

Preferred Equity:

4,000,000 shares x 25 = 100,000,000

Debt:

6,000 x 1,000 x 109/100 = 6,540,000‬

total value: 114,540,000

Common Equity weight: Common Stock / Value

80,000,000 / 114,540,000 = 0,6984459577440196 = 69.84%