What weight should be placed on the preferred stock

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Reference no: EM13948827

1. A firm has 12,000 shares of common stock outstanding with a book value of $20 per share and a market value of $39. There are 5,000 shares of preferred stock with a book value of $10 and a market value of $26. There is a $400,000 face value bond issue outstanding that is selling at 87% of par. What weight should be placed on the preferred stock when computing the firm's WACC?

A. 7.25%

B. 13.74%

C. 11.48%

D. 15.09%

2. To calculate the present value of a business, the firm's free cash flows should be discounted at the firm's:

A. weighted-average cost of capital.

B. pre-tax cost of debt.

C. aftertax cost of debt.

D. cost of equity

Reference no: EM13948827

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