Question

Raymond Co. has $1.4 million of debt, $3 million of preferred stock, and $1.2 million of common equity. What would be its weight on common equity

Answer 1

Answer:

the Weight of common Equity is 0.21

Explanation:

The computation of the weight on common equity is shown below:

But before that first we have to determine the total firm value

= Debt + Preferred stock + common Equity  

= $1.4 million + $3 million + $1.2 million

= $5.6 million

Now the weight on common stock is

Weight of common Equity = Common Equity ÷Total Shareholders Fund

= $1.2 million ÷ $5.6 million    

= 0.21

hence, the Weight of common Equity is 0.21