Question

Here I Sit Sofas has 6,800 shares of common stock outstanding at a price of $91 per share. There are 1,030 bonds that mature in 27 years with a coupon rate of 6.5 percent paid semiannually. The bonds have a parvalue of $1,000 each and sell at 107 percent of par. The company also has 5,700 shares of preferred stock outstanding at a price of $44 per share. What is the capital structure weight of the debt?

Answer 1

The capital structure weight of the debt is 35.4%.

Step-by-step explanation:

The capital structure weight of the debt is calculated by dividing the total value of the bonds by the total value of the company's capital structure. To calculate the total value of the bonds, multiply the number of bonds by the bond price and the par value. In this case, the total value of the bonds is 1,030 x $1,070 x $1,000 = $1,117,100. To calculate the total value of the capital structure, add the value of the common stock, preferred stock, and bonds. In this case, the total value of the capital structure is $6,800 x $91 + $5,700 x $44 + $1,117,100 = $3,157,400. Finally, divide the value of the bonds by the value of the capital structure to get the capital structure weight of the debt: $1,117,100 / $3,157,400 = 0.354 or 35.4%.