Question

Saint Nick Enterprises has 18,500 shares of common stock outstanding at a price of $74 per share. The company has two bond issues outstanding. The first issue has 10 years to maturity, a par value of $2,000 per bond, and sells for 104 percent of par. The second issue matures in 24 years, has a par value of $1,000 per bond, and sells for 98 percent of par. The total face value of the first issue is $300,000, while the total face value of the second issue is $400,000. What is the capital structure weight of debt? Multiple Choice .3396 .3849 .1891 .4114 .3118

Answer 1

.3396

Step-by-step explanation:

the capital structure weight of debt = sum of market value of total debt / sum of the market value of debt + equity

market value of debt = ($300,000 x 1.04) + ($400,000 x 0.98) = $312,000 + $392,000 = $704,000

market value of equity = 18,500 x $74 = $1,369,000

the capital structure weight of debt = $704,000 / ($704,000 + $1,369,000) = 0.3396