Theresa's Flower Garden has 750 bonds outstanding that are selling for $989 each, 2,500 shares of preferred stock with a market price of $47 a share, and 30,000 shares of common stock valued at $56 a share. What weight should be assigned to the common stock when computing the firm's weighted average cost of capital?

weight of preferred stock = 4.63 %

Explanation:

given data

Number of outstanding bonds = 750

selling price = $989 each

preferred stock = 2,500 shares

market price = $47 a share

number of common stock = 30,000

common stock valued = $56 share

solution

we first get here total market value that is express as

total market value = Number of outstanding bonds * selling price per bond + number of preferred stock * market price per share + number of common stock * par value per share ... 1

put here value and we get

total market value = 750 * $989 + 2,500 * $47 + 30,000 * $56

solve it we get

total market value = $2539250

and

here now we get weight of preferred stock that will be

weight of preferred stock = Total value of preferred stock : total market value * 100 ... 2

put here value

weight of preferred stock = (2,500 * $47) : $2539250 * 100

weight of preferred stock = 4.63 %