Question

1. FarCry Industries, a maker of telecommunications equipment, has 5 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 20,000 bonds. Suppose the common shares are selling for $26 per share, the preferred shares are selling for $14.00 per share, and the bonds are selling for 97 percent of par.

What weight should you use for debt in the computation of FarCry’s WACC? (Round your answer to 2 decimal places.)

2.

FarCry Industries, a maker of telecommunications equipment, has 3 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. Suppose the common shares sell for $28 per share, the preferred shares sell for $15.00 per share, and the bonds sell for 98 percent of par.

What weight should you use for preferred stock in the computation of FarCry’s WACC? (Round your answer to 2 decimal places.)

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

co EFF Capital Common Stock Preferred Stock Debt Outstanding units 5,000,000 2,000,000 20,000 Price $26.00 $14.00 $970.00 Market Value $130,000,000.00 $28,000,000.00 $19,400,000.00 $177,400,000.00 Weight 0.7328 0.1578 0.1094 In percentage 10.94% In Number 0.11 Weight of Debt Capital Common Stock Preferred Stock Outstanding units 3,000,000 1,000,000 10,000 Price | Market Value $28.00 $84,000,000.00 $15.00 $15,000,000.00 $980.00 $9,800,000.00 $108,800,000.00 In Number Weight 0.4735 0.0846 0.0552 Debt In percentage 8.46% Weight of Preferred Stock 0.08

Cell reference -

А B C D E F 1 Price Ovo AwN- Capital Common Stock Preferred Stock Debt Outstanding units 5000000 2000000 20000 Market Value =C3*D3 =C4*D4 =C5*D5 =SUM(E3:E5) Weight =E3/$E$6 =E4/$E$6 =E5/$E$6 14 =97%*1000 In percentage =F5 In Number =F5 Weight of Debt 10 Price 11 2 12 28 Capital Common Stock Preferred Stock Debt Outstanding units 3000000 1000000 10000 Weight =E12/$E$6 =E13/$E$6 =E14/$E$6 13 Market Value =C12*D12 =C13*D13 =C14*D14 =SUM(E12:E14) 15 1=98%*1000 In percentage Weight of Preferred Stock =F13 In Number =F13

Please note: It is not mentioned in question where answer required in percentage format or number format thus, i provided answer in both format.

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.