Watson’s Automotive has a $400,000 bond issue outstanding that is sell

Watson’s Automotive has a $400,000 bond issue outstanding that is selling at 102 percent of face value. Watson’s also has 4,500 shares of preferred stock and 21,000 shares of common stock outstanding.

The preferred stock has a market price of $44 a share compared to a price of $21 a share for the common stock. What is the weight of the debt as it relates to the firm’s weighted average cost of capital? Round answer to nearest percent.
A) 38 percent
B) 39 percent
C) 40 percent
D) 41 percent
E) 42 percent

ANSWER

B