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Kim's Bridal Shoppe has 12,200 shares of common stock outstanding at a price of $56 a...

Kim's Bridal Shoppe has 12,200 shares of common stock outstanding at a price of $56 a share. It also has 315 shares of preferred stock outstanding at a price of $90 a share. There are 380 bonds outstanding that have a 7.5 percent semiannual coupon. The bonds mature in six years, have a face value of $2,000, and sell at 112 percent of par. What is the capital structure weight of the common stock?

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Answer #1

Capital structure weight of the common stock

Market Value of Debt = $851,200 [380 Bonds x ($2,000 x 112%)]

Market Value of Preferred Stock = $28,350 [315 Stocks x $80]

Market Value of Common Stock = $683,200 [12,200 Shares x $56]

Total Market Value = $15,62,750 [$851,200 + $28,350 + $683,200]

Capital structure weight of the common stock = Market Value of Common Stock / Total market Value

= $683,200 / $15,62,750

= 0.4372 or

= 43.72%

“Therefore, the Capital structure weight of the common stock would be 0.4372 or 43.72%”

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