Question

Hankins corporation has 5.4 million shares of common stock outstanding; 290,000 shares of 5.2 percent preferred stock outstanding, par value of $100; and 125,000 5.7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $72 per share and has a beta of 1.13, the preferred stock currently selld for $103 per share, and the bonds have 20 years to maturity and sell for 103 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 4.3 percent, and the firms tax rate is 23 percent. What is the weight of preferred stock?

Answer 1

Particulars Debt Preferred stock common stock Market value $128,750,000 $29,870,000 $388,800,000 $547,420,000 Weight of debt = 23.52% [128750000/547420000 ]