Suppose ABC Co. has the following financial information:
Debt: 25,000 bonds outstanding with a face value of $1,000. The bonds currently trade at 91% of par and have 10 years to maturity. The coupon rate equals 3%, and the bonds make semi-annual interest payments.
Preferred stock: 300,000 shares of preferred stock outstanding; currently trading for $153 per share and it pays a dividend of $6.40 per share every year.
Common stock: 1,000,000 shares of common stock outstanding; currently trading for $85 per share. Beta equals 0.88.
Market and firm information: The expected return on the market is 12%, the risk free rate is 3%, tax rate is 21%
Calculate the weight of common stock in the capital structure. (Enter percentages as decimals and round to 4 decimals)
The weight of common stock in the capital structure = 0.2987
Notes:
Values:
Preferred Stock = 300,000 shares * $ 153
Common stock = 1,000,000 shares * $85 per share
Debt = 25,000 bonds * $ 1000 * 91% of par
| Value ( Number * Price) | Weight (Respective/ Total) | |
| Preferred Stock | 45900000 | 0.2987 |
| Equity | 85000000 | 0.5532 |
| Debt | 22750000 | 0.1481 |
| Total Value | 153650000 |
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