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:

49.7392%

Explanation:

The computation of the capital structure weight of the debt is shown below:

But before that we need to determine the following calculations

Equity market value is

= number of shares × price per share

= 6,000 shares  × $83

= 498,000

Current debt value = number of bonds × price per bond

=  710  × (94% × 1000)

= 667,400

Preferred stock value is

= number of shares × price per share

=  4,900 × $36

= 176,400

Now Total capital is

= common equity value + debt value + preferred stock value

= $498,000 + $667,400 + $176,400

= $1,341,800

And finally

Weight of debt is

= debt value ÷ total capital

= $667,400 ÷ $1,341,800

= 0.497392

= 49.7392%