Question

Further From Center has 11,800 shares of common stock outstanding at a price of $52 per share. It also has 295 shares of preferred stock outstanding at a price of $94 per share. There are 340 bonds outstanding that have a coupon rate of 7.1 percent paid semiannually. The bonds mature in 33 years, have a face value of $2,000, and sell at 110 percent of par. What is the capital structure weight of the preferred stock?

Answer 1

Answer:

The correct answer is 0.02.

Explanation:

According to the scenario, computation of the given data are as follows:

Common stock shares = 11,800 shares

Common stock share price = $52 per share

So, total value of common stock = 11,800 × $52 = $613,600

Preferred stock shares = 295 shares

Preferred stock share price = $94 per share

So, total value of Preferred stock = 295 × $94 = $27,730

Bonds outstanding = 340

Bond price = $2,000 and Sell at 110% of par.

So, total value of outstanding bond = 340 (2,000 × 110%) = $748,000

So, Capital structure weight of Preferred stock = total value of Preferred stock ÷ Total value of all stock.

= $27,730 ÷ ( $613,600 + $27,300 + $748,000)

= $27,730 ÷ $1,388,900

= 0.019 or 0.02