FarCry Industries, a Maker of Telecommunications Equipment, Has 26 Million

question 29

Multiple Choice

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 $12 per share, the preferred shares sell for $114.50 per share, and the bonds sell for 98 percent of par ($1,000) , what weight should you use for preferred stock in the computation of FarCry's WACC?

• A) 28.52 percent
• B) 27.51 percent
• C) 26.24 percent
• D) 25.01 percent

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Definitions:

Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits, which can be issued in various forms such as cash payments or further shares.

Geometric Average Rate

The average rate of return that accounts for compounding over a specified time period.

Stock

A type of investment that represents ownership in a corporation, giving the holder a claim on part of the corporation's assets and profits.

Standard Deviation

A statistical measure that quantifies the variation or dispersion of a set of data points.