Question

Kim's Bridal Shoppe has 12,200 shares of common stock outstanding at a price of $56 per share. It also has 315 shares of preferred stock outstanding at a price of $90 per share. There are 380 bonds outstanding that have a coupon rate of 7.5 percent paid semiannually. The bonds mature in 37 years, have a face value of $2,000, and sell at 112 percent of par. What is the capital structure weight of the common stock?

Answer 1

Answer:

Total weight is calculated as follows:

Common stock (12,200 x $56) = 683,200

Preferred stock (315 x $90)      = 28,350

Bond (380 x $2,240)                 =  851,200

Total market value                       1,562,750

The capital structure weight of common stock = 683,200/1.562,750 x 100

                                                                             = 43.72%

Explanation:

In this case, we need to determine the total market value of the company and then divide the market value of common stock by the market value of the company.