Question

Here I Sit Sofas has 6,000 shares of common stock outstanding at a price of $83 per share. There are 710 bonds that mature in 19 years with a coupon rate of 5.7 percent paid semiannually. The bonds have a par value of $1,000 each and sell at 94 percent of par. The company also has 4,900 shares of preferred stock outstanding at a price of $36 per share. What is the capital structure weight of the debt

Answer 1

Answer:

Weight of Bonds =  99.0%

Explanation:

The weight of capital component is the proportion of the market value of that capital in relation to the total market value.

Hence, the weight of bond would be the ratio of the its market value to the total market value

                                                        Market Value

Equity = 83× 6000                  =     498,000  

Bonds =  710× 1000 × 94 =             66,740,000  

Preferred stock = 36× 4900 =         498,000

Total                                                   67,414,400  

Weight of Bonds =( Market value of bonds/Total market Value) × 100

                              =(66,740,000  / 67,414,400)  × 100 = 99.0%

Weight of Bonds =  99.0%