Question

Kim's Bridal 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 six years, have a face value of $1,000, and sell at 96 percent of par.

What is the capital structure weight of the common stock?A. 24.20B. 31.68C. 53.15D. 58.72E. 66.23

Answer 1

Market value of common stocks (15,000 x $11) 165,000

Market value of preferred stocks (2,000 x $34) 68,000

Market value of bonds (50 x $960) 48,000

Market value of the firm 281,000

The capital structure weight of common stocks

= $165,000/$281,000 x 100

= 58.72%

Step-by-step explanation:

In this case, there is need to determine the market value of the company, which is the aggregate of market value of common stocks, market value of preferred stocks and market value of bonds. The capital structure weight of common stocks is the ratio of market value of common stocks to market value of the company multiplied by 100.