Question

Here I Sit Sofas has 6,600 shares of common stock outstanding at a price of $89 per share. There are 950 bonds that mature in 25 years with a coupon rate of 6.3 percent paid semiannually. The bonds have a par value of $1,000 each and sell at 106 percent of par. The company also has 5,500 shares of preferred stock outstanding at a price of $42 per share. What is the capital structure weight of the debt

Answer 1

55.17 %

Step-by-step explanation:

We use the Market Values of Sources of Capital to determine their Weight in Capital Structure.

Weight of the debt = Market Value of Debt / Total Market Value x 100

where,

Market Value of Debt = 950 x $1,000 x 106% = $1,007,000

Market Value of Common Stock = 6,600 x $89 = $587,400

Market Value of Preferred Stock = 5,500 x $42 = $231,000

therefore,

Weight of the debt = $1,007,000 / $1,825,400 x 100

= 55.17 %

thus,

The capital structure weight of the debt is 55.17 %