Carrie D's has 6 million shares of common stock outstanding, 2 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling for $15 per share, the preferred shares are selling for $28 per share, and the bonds are selling for 109 percent of par, what would be the weight used for equity in the computation of Carrie D's WACC?

57.36%

Explanation:

The weighted average cost of capital (WACC) refers the calculation of cost of capital of a firm where each types of capital are assigned proportional weight based on their contribution to the capital. In calculating WACC, all sources of capital are considered in the calculation These capital are common stock, preferred stock, bonds, and among other.

The following steps are followed in calculate the weight to be used for equity in the computation of Carrie D's WACC.

Step 1: Calculation of total market value of Carrie D’s financing

Common stock value = 6,000,000 × $15 = $90,000,000

Preferred stock value = 2,000,000 × $28 = $56,000,000

Bonds value = 10,000 × 109% × 1000 = 10,900,000

Total market value of Carrie D’s financing = $90,000,000 + $56,000,000 + $10,900,000.00

Total market value of Carrie D’s financing = $156,900,000.00

Step 2: Calculation of the weight used for equity in the computation of Carrie D's Weighted Average Cost of Capital (WACC)

Weight of Equity in WACC = (Common stock value ÷ Total market value of Carrie D’s financing) × 100

                                               = ($90,000,000 ÷ $156,900,000.00) × 100

Weight of Equity in WACC = 57.36%

Therefore, the weight to be used for equity in the computation of Carrie D's WACC is 57.36%.

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