Question

Kim's Bridal Shoppe has 10,700 shares of common stock outstanding at a price of $41 per share. It also has 240 shares of preferred stock outstanding at a price of $92 per share. There are 570 bonds outstanding that have a coupon rate of 6 percent paid semiannually. The bonds mature in 22 years, have a face value of $1,000, and sell at 104.5 percent of par. What is the capital structure weight of the common stock?

Answer 1

Answer:

The capital structure weight of common stock is 41.53%

Explanation:

Th capital structure of a company can contain the following three components - debt, preferred stock and common stock.

The capital structure weight of a component can be calculated by dividing the market value of that component by the market value of the total capital structure or the total assets.

Capital structure weight of common stock will be,

Capital structure weight = MVe / (MVd + MVe + MVp)

Where,

• MVe is the market value of common stock
• MVd is the market value of debt
• MVp is the market value of preferred stock

• MVe = 10700 * 41    = $438700

• MVd = 570 * 1000 * 104.5%  = $595650

• MVp = 240 * 92   = $22080

Capital structure weight of common stock is,

Capital structure weight = 438700 / (438700 + 595650 + 22080)

Capital structure weight = 0.41526 or 41.526% rounded off to 41.53%