MC algo 13-11 Capital Structure Weight Kim's Bridal Shoppe has 11,900 shares of common stock outstanding at a price of $53 per share. It also has 300 shares of preferred stock outstanding at a price of $93 per share. There are 350 bonds outstanding that have a coupon rate of 7.2 percent paid semiannually. The bonds mature in 34 years, have a face value of $2,000, and sell at 110.5 percent of par. What is the capital structure weight of the common stock

The Weight of a Capital Source in Capital Structure is determined by expressing the Value of that Capital Source as a percentage of the Total Capital of the Company

Capital Source Market Value Weight

Common stock $630,700 44.04%

Preferred stock $ 27,900 1.95%

Bonds $773,500 55.01%

Total $1,432,000 100.00%

CALCULATIONS OF THE MARKET VALUES ARE AS FOLLOWS

Common stock = 11,900 shares× $53 per share = $630,700

Preferred stock= 300 shares× $93 per share = $ 27,900

Bonds = $2,000×110.5%× 350 bonds = $773,500

fichoh fichoh · Answer 2 · 2020-04-01T08:13:42+02:00

Answer: Capital structure weight of common stock = 0.4404

Explanation:

GIVEN the following ;

EQUITY :

Common stock:

price per share= $53

Outstanding shares = 11,900

Preferred stock :

Price per share = $93

Outstanding shares = 300

DEBT:

Outstanding bonds = 350

Par value = $2000

Selling price percent = 110.5%

Capital structure weight is used to the determine the ratio of the capital base of a firm in terms of equity and debt or loan.

Capital from Common stock :

$53 × 11,900 = $630,700

Capital from preferred stock :

$93 × 300 = $27,900

Capital from bonds :

Selling price % × number of bonds × Par value

1.105 × 350 × $2000 = $773,500

Total Capital :

$(630,700 + 27,900 + 773,500)

= $1,432,100

Weight of common stock :

(Capital from common stock ÷ Total capital)

$(630,700 ÷ 1,432,100)

= 0.4404