Problem:
The Auto Group has 1,000 bonds outstanding that are selling for $940 each. The company also has 9,300 shares of preferred stock at a market price of $65 each. The common stock is priced at $60 a share and there are 39,000 shares outstanding.
Required:
Question: What is the weight of the preferred stock as it relates to the firm's weighted average cost of capital?
Note: Provide support for your underlying principle.