Question

Here I Sit Sofas has 5,800 shares of common stock outstanding at a price of $81 per share. There are 630 bonds that mature in 17 years with a coupon rate of 5.5 percent paid semiannually. The bonds have a par value of $1,000 each and sell at 93 percent of par. The company also has 4,700 shares of preferred stock outstanding at a price of $34 per share. What is the capital structure weight of the debt?

Answer 1

0.4820

Step-by-step explanation:

The computation of the weight of debt is shown below:

= Debt value ÷ Total capital structure

where,

Debt value is

= 630 bonds × $1,000 × 0.93

= $585,900

And, the total capital structure is

= Debt value + common stock + preferred stock

= $585,900 + 5,800 shares × $81 + 4,700 shares × $34

= $1,215,500

So, the weight of debt is

= $585,900 ÷ $1,215,500

= 0.4820