Question

Christie's Train Shoppe has 15,000 shares of common stock outstanding at a price of $11 a share. It also has 2,000 shares of preferred stock outstanding at a price of $34 a share. There are 50 bonds outstanding that have a 7.5 percent semiannual coupon. The bonds mature in 6 years, have a face value of $1,000, and sell at 96 percent of par. What is the capital structure weight of the preferred stock

Answer 1

The capital structure weight of the preferred stock = 24.2%

Step-by-step explanation:

To get the capital structure weights, market values should be used.

Weight of preferred stock = Value Of Preferred Stock divided by Total Capital

and Total Capital = Value of Common stock+Value of Preferred Stock+Value of bonds

Value of common stock = 15,000 shares *$11 = $165,000

Value of preferred Stock = 2,000 shares*$34= $68,000

Value of bonds= 50 bonds *96% of par = 50 bonds *$1,000*0.96= $48,000

Weight of preferred stock =
`(68,000)/(165,000+68,000+48,000)=0.24199`