Question

Empire Plumbing Supply has 100,000 shares of common stock outstanding at a price of $37 a share. It also has 6,000 shares of preferred stock outstanding at a price of $30 a share. There are 5,000 bonds outstanding that have a semiannual coupon payment of $25. The bonds mature in four years, have a face value of $1,000, and sell at 110 percent of par. What is the capital structure weight of the common stock?

Answer 1

Answer:

 39.45%

Explanation:

For the computation of capital structure weight of the common stock first we need to follow some steps which is shown below:-

Step 1

The Market value of common stock = Shares of common stock × Price of common stock

= 100,000 × $37

= $3,700,000

Step 2

The Market value of preferred stock = Shares of preferred stock × price of preferred stock

= 6000 × $30

= $180,000

Step 3

The Market value of bonds = No. of bonds × par value × Selling rate

= 5,000 × $1,000 × 110%

= $5,500,000

Step 4

Total capital = $3,700,000 + $180,000 + $5,500,000

= $9,380,000

and finally

Capital structure weight of common stock = market value of common stock ÷ total capital

= $3,700,000 ÷ $9,380,000

= 0.3945

or

= 39.45%