Question

Kim's Bridal Shoppe has 11,400 shares of common stock outstanding at a price of $48 per share. It also has 275 shares of preferred stock outstanding at a price of $90 per share. There are 300 bonds outstanding that have a coupon rate of 6.7 percent paid semiannually. The bonds mature in 29 years, have a face value of $2,000, and sell at 108 percent of par. What is the capital structure weight of the common stock

Answer 1

0.0203

Step-by-step explanation:

Calculation for the capital structure weight of the common stock

First step is to calculate the Value of Common Stock

Value of Common Stock = 11,400(48)

Value of Common Stock= $547,200

Second step is to calculate the Value of Preferred Stock

Value of Preferred Stock = 275(90)

Value of Preferred Stock = $24,750

Third step is to calculate the Value of Debt

Value of Debt = 1.08(2,000)(300)

Value of Debt= $648,000

Last step is to calculate the Weight of Preferred Stock

Weight of Preferred Stock = 24,750/(547,200 + 24,750 + 648,000)

Weight of Preferred Stock = 0.0203

Therefore the capital structure weight of the common stock will be 0.0203