Question

Mercado, Inc. has 5,400,000 common shares outstanding at a price of $ 64 each. He has...

Mercado, Inc. has 5,400,000 common shares outstanding at a price of $ 64 each. He has 290,000 preferred shares outstanding with a 5.6% dividend based on the par value of $ 100, which sell for $ 103 each. It has issued 125,000 bonds at 109% of their par value of $ 1,000, with a yield to maturity of 5.93%. The common share's beta is 1.13, the treasury bills rate is 4.3%, and the market risk premium is 6.8%. The applicable tax rate is 34%. The share of common stock in total long-term financing is

a. 26.62%
b. 67.54%
c. 5.84%
d. There is not enough information to calculate it.

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Answer #1

Value of equity = Number of shares * market price per share

=5400000*64

=345600000

Value of Preferred stock = Number of shares * market price per share

=290000*103

=29870000

Value of bond = number of bonds * par value * quoted %

=125000*1000* 109%

=136250000

Total market value or long term financing =345600000+29870000+ 136250000

=511720000

share of common stock = value of common stock/total value

=345600000/511720000

=0.6753693426 or 67.54%

So answer is 67.54%

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