Question

Wyle Co. has $3.9 million of debt, $1 million of preferred stock, and $2.1 million of common equity. What would be its weight on preferred stock

Answer 1

Weight of Preferred stock = 0.1428571429 or 14.28571429% rounded off to 14.29%

Step-by-step explanation:

The capital structure of a business is made up of at least one or at most all of the following components namely Debt, Preferred Stock and Common Equity. The ratio in which each of these components form the capital structure might differ from business to business. The weightage of each component in the capital structure can be calculated by dividing the market value of each component by the sum of the market value of all the components.

Weight of a component = Market Value of component / Sum of market value of all components

Weight of Preferred stock = 1,000,000 / (3,900,000 + 1,000,000 + 2,100,000)

Weight of Preferred stock = 0.1428571429 or 14.28571429% rounded off to 14.29%