Question

Further From Center has 12,100 shares of common stock outstanding at a price of $55 per share. It also has 310 shares of preferred stock outstanding at a price of $91 per share. There are 370 bonds outstanding that have a coupon rate of 7.4 percent paid semiannually. The bonds mature in 36 years, have a face value of $2,000, and sell at 111.5 percent of par. What is the capital structure weight of the preferred stock?
a. 0.0186
b. 0.5433
c. 0.4382
d. 0.0953
e. 0.0639

Answer 1

Answer:

Market value of common stocks = 12,100 x $55 = $665,500

Market value of preferred stock = 310 x $91       = $28,210

Market value of bonds                = 370 x $2,230 = $825,100

Market value of the company                                   $1,518,810

Capital structure weight of preferred stocks

= $28,210/$1,518,810

= 0.0186

The correct answer is A

Explanation:

In this question, we need to calculate the market value of the company, which is the aggregate of market value of equity, market value of preferred stocks and market value of bond. The capital structure weight of preferred stock is the ratio of market value of preferred stock to market value of the company.