Question

KHD has 1,500 bonds outstanding that are selling for $1,000 each. The common stock is priced at $26 a share and there are 36,000 shares outstanding. What is the weight of the common stock as it relates to the firm's weighted average cost of capital?

Answer 1

Answer:

38.42%

Explanation:

First, find the market value of debt( bonds in this case);

market value of debt = price of bond * number of bonds

 = $1,000 * 1,500 = $1,500,000

First, find the market value of common stock;

market value of common stock = price per share * number of stock outstanding

 = $26 * 36,000 = $936,000

Since debt and equity make up KHD company's capital ,

total capital = market value of debt + market value of common stock

= $1,500,000 + $936,000

= $2,436,000

Weight of the common stock = market value of common stock / total capital value;

= $936,000/ $2,436,000

= 0.3842 or 38.42% as a percentage

Therefore, What is the weight of the common stock is 38.42%