Question

Imperial Industries has $400,000 in short-term debt and $2.6 million in long-term debt. Their preferred shares sell for $50.00 each, and their are 100,000 shares outstanding. Imperial's common stock sells for $32.00 per share, and there are 1 million shares outstanding. Use these data to calculate the weight of Imperial's common equity. Calculate the percentage to two decimal places (0.03148 = 3.15).

Answer 1

To calculate the weight of Imperial's common equity, divide the market value of common equity by the total capitalization of the company. In this case, the weight of Imperial's common equity is approximately 92.84%.

Step-by-step explanation:

To calculate the weight of Imperial's common equity, we need to calculate the market value of common equity first. The market value of common equity is calculated by multiplying the number of common shares outstanding by the price per share. In this case, Imperial has 1 million shares outstanding and the price per share is $32.00, so the market value of common equity is 1 million x $32.00 = $32,000,000.

To calculate the weight of common equity, divide the market value of common equity by the total capitalization of the company (which is the sum of short-term debt, long-term debt, and preferred equity). In this case, the total capitalization is $400,000 (short-term debt) + $2.6 million (long-term debt) + ($50.00 per share x 100,000 shares) (preferred equity) + $32,000,000 (common equity) = $34.45 million.

So, the weight of Imperial's common equity is $32,000,000 / $34.45 million = 0.9284. Multiplying this by 100 gives us the percentage, which is approximately 92.84%.