FarCry Industries, a maker of telecommunications equipment, has 26 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares sell for $15 per share, the preferred shares sell for $114.50 per share, and the bonds sell for 101 percent of par ($1,000), what weight should you use for preferred stock in the computation of FarCry’s WACC?
114.5 × 1/[26 × 15 + 114.5 × 1 + 1,010 × 0.01] = 22.25 percent.
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