Kim\'s Shoppe has 17,613 shares of common stock outstanding at a price of $35 a

Question

Kim's Shoppe has 17,613 shares of common stock outstanding at a price of $35 a share. It also has 3,003 shares of preferred stock outstanding at a price of $163 a share. There are 50 bonds outstanding that have a 0.12 semiannual coupon. The bonds mature in 17 years, have a face value of $892, and sell at 102 of par. What is the capital structure weight of the common stock?

Capital Structure Weights

Value of Common Equity/(Total value of debt + equity)

The value of the common equity is #share x market price; value of preferred stock is #shares x market price; value of debt is #shares x face value x percent of par they sell at.

Explanation / Answer

Hi,

Please find the answer as follows:

Market Value of Common Stock = Number of Common Stock*Marke Price = 17613*35 = 616455

Market Value of Preferred Stock = Number of Preferred Stock*Marke Price = 3003*163 = 489489

Market Value of Bonds = Number of Bonds*Face Value*102% = 50*892*102% = 45492

Total Market Value of the Firm = 616455 + 489489 + 45492 = 1151436

Weight of Common Stock = Market Value of Common Stock/Total Market Value of the Firm*100 = 616455/1151436*100 = 53.54%

Answer is 53.54%.

Thanks.

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