Question

Gilberto co. has $3.47 million of debt, $3.04 million of preferred stock, and $2.53 million of common equity. what would be its weight on common equity?

a. 30.27%
b. 36.99%
c. 27.99%
d. 26.90%

Answer 1

The weight of common equity for Gilberto Co. is calculated as the proportion of common equity relative to the total capital. Upon calculation, the weight is found to be 27.99%, which matches option c. 27.99%. This is based on the formula using the company's financial figures for debt, preferred stock, and common equity.

Step-by-step explanation:

The question pertains to the calculation of the weight of common equity in the capital structure of Gilberto Co. The company has three components of its capital structure: debt, preferred stock, and common equity. To determine the weight of common equity, we must calculate the proportion of common equity relative to the total capital, which includes debt, preferred stock, and common equity itself. The formula for calculating the weight of common equity is:

Weight of Common Equity = (Common Equity) / (Debt + Preferred Stock + Common Equity)

Substituting the given values:

Weight of Common Equity = $2.53 million / ($3.47 million + $3.04 million + $2.53 million)

Weight of Common Equity = $2.53 million / $9.04 million

Weight of Common Equity = 0.2799 or 27.99%

The weight of common equity for Gilberto Co. is 27.99%, which corresponds to option c. 27.99%.