Question

Further From Center has 11,100 shares of common stock outstanding at a price of $45 per share. It also has 260 shares of preferred stock outstanding at a price of $87 per share. There are 610 bonds outstanding that have a coupon rate of 6.4 percent paid semiannually. The bonds mature in 26 years, have a face value of $1,000, and sell at 106.5 percent of par. What is the capital structure weight of the preferred stock?

Answer 1

The capital structure weight of the preferred stock is 0.019

Step-by-step explanation:

In order to calculate the capital structure weight of the preferred stock we would have to calculate first the total value of all the particulars as follows:

Total value particulars=value common stockv+value preferred stock+value bonds outstanding

value common stock=11,100*$45=$499,500

value preferred stock=260*$87=$22,620

value bonds outstanding=610*($1,000*106.5%)=$649,650

Total value particulars=$499,500+$22,620+$649,650

Total value particulars=$1,171,770

Therefore, the capital structure weight of the preferred stock=value preferred stock/Total value particulars

capital structure weight of the preferred stock=$22,620/$1,171,770

capital structure weight of the preferred stock=0.019

The capital structure weight of the preferred stock is 0.019