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lesya692 [45]
3 years ago
7

A company has 800 bonds outstanding with a par value of $1,000 and priced at 95% of par. It also has 40,000 shares of common sto

ck outstanding with a book value per share of $50 and market price per share of $60. Calculate the capital-structure weights for the firm (as if you were calculating the firm’s Weighted Average Cost of Capital).
Business
1 answer:
alisha [4.7K]3 years ago
7 0

Answer:

Bonds   = 24%

Shares  = 76%

Explanation:

The weight of each of the finance sources is the proportion that their market value bears to the total market value.

This is computed as follows:

                                                                               $

Market value of bonds= 95%× 1,000× 800= 760,000

Market value of shares = 60× 40,000=        <u>2,400,000</u>

Total market value                                        <u>  3,160,000</u>

Bonds             = 760,000/3,160,000× 100= 24%

Shares             = 2400000/3,160,000×  100= 76%

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