7 Kim's Fur Shoppe has 11,200 shares of common stock outstanding at a price of $46 per share. It also has 265 shares of preferred stock outstanding at a price of $88 per share. There are 620 bonds outstanding that have a coupon rate of 6.5 percent paid semiannually. The bonds mature in 27 years, have a face value of $1,000, and sell at 107 percent of par. What is the capital structure weight (WE) of the common stock?
A 0.5018 B 0.447 C 0.4286 D 0.3256
MV of equity=Price of equity*number of shares outstanding |
MV of equity=46*11200 |
=515200 |
MV of Bond=Par value*bonds outstanding*%age of par |
MV of Bond=1000*620*1.07 |
=663400 |
MV of Preferred equity=Price*number of shares outstanding |
MV of Preferred equity=88*265 |
=23320 |
MV of firm = MV of Equity + MV of Bond+ MV of Preferred equity |
=515200+663400+23320 |
=1201920 |
Weight of equity = MV of Equity/MV of firm |
Weight of equity = 515200/1201920 |
W(E)=0.4286 |
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