Question
Including preferred stock in the WACC adds the term:
Multiple choice question.
(V/P) × RP
[P/(E + D)] × RP
(P/V) × RP
Multiple choice question.
(V/P) × RP
[P/(E + D)] × RP
(P/V) × RP
Answers
GPT-4o mini
To include preferred stock in the Weighted Average Cost of Capital (WACC) formula, the correct term to add would be:
\[(P/V) \times RP\]
Where:
- \(P\) = market value of preferred equity
- \(V\) = total market value of the firm (equity + debt + preferred stock)
- \(RP\) = cost of preferred equity
Thus, the correct answer is:
**(P/V) × RP**
\[(P/V) \times RP\]
Where:
- \(P\) = market value of preferred equity
- \(V\) = total market value of the firm (equity + debt + preferred stock)
- \(RP\) = cost of preferred equity
Thus, the correct answer is:
**(P/V) × RP**