Gillian's Boutique has 850,000 shares of common stock outstanding at a market price of $16 a share.The company also has 15,000 bonds outstanding that are quoted at 98 percent of face value.What weight should be given to the common stock when Gillian's computes their weighted average cost of capital? Round answer to nearest percent.

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Quizplus · Accepted Answer

Step 1 - Calculate the value of the firm's securities. V = E + D + P E = 16 × 850,000 = 13,600,000D = 980 × 15,000 = 14,700,000P = 0V = 28,300,000 Step 2 - Calculate the weight of common stock. W_e = E/V W_e = 13,600,000 / 28,300,000 = 48.1% or 48%

Gillian's Boutique Has 850,000 Shares of Common Stock Outstanding at a Market