Empire Plumbing Supply has 100,000 shares of common stock outstanding at a price of $37 a share.It also has 6,000 shares of preferred stock outstanding at a price of $30 a share.There are 5,000 bonds outstanding that have a semiannual coupon payment of $25.The bonds mature in four years, have a face value of $1,000, and sell at 110 percent of par.What is the capital structure weight of the common stock?

Question

Quizplus · Accepted Answer

The capital structure weight of the common stock is calculated by dividing the market value of the common stock by the total market value of the firm's financing. The market value of the common stock is 100,000 shares * $37 = $3,700,000. The market value of the preferred stock is 6,000 shares * $30 = $180,000. The market value of the bonds is 5,000 bonds * $1,100 = $5,500,000. The total market value is $3,700,000 + $180,000 + $5,500,000 = $9,380,000. The weight of the common stock is $3,700,000 / $9,380,000 = 0.3945 or 39.45 percent.

Empire Plumbing Supply Has 100,000 Shares of Common Stock Outstanding