Question

Dee's Dress Emporium has 50,000 shares of common stock outstanding at a price of $27 a share. It also has 1000 shares of preferred stock outstanding at a price of $20 a share. There are 800bonds 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 97 percent of par. What is the capital structure weight of the common stock

Answer 1

Answer:

0.6290

Explanation:

Common Stock = Shares × Price per share

                          = 50,000 × $27

                          = $1,350,000

Preferred Stock = Shares × Price per share

                          = 1,000 × $20

                          = $20,000

Bonds = Bonds outstanding ×  Face value × sell at 97% par

          = 800 × 1000 × 0.97

          = 776,000

Total = Common Stock + Preferred Stock + Bonds

        = $1,350,000  + $20,000 + 776,000

        = 2,146,000

Capital structure weight of the common stock:

= Common Stock value ÷ Total value

= $1,350,000 ÷ 2,146,000

= 0.6290