Question

# Saint Nick Enterprises has 18,100 shares of common stock outstanding at a price of \$72 per...

Saint Nick Enterprises has 18,100 shares of common stock outstanding at a price of \$72 per share. The company has two bond issues outstanding. The first issue has 10 years to maturity, a par value of \$2,000 per bond, and sells for 103 percent of par. The second issue matures in 24 years, has a par value of \$1,000 per bond, and sells for 108 percent of par. The total face value of the first issue is \$280,000, while the total face value of the second issue is \$380,000. What is the capital structure weight of debt?

The weight of debt is computed as shown below:

= Total value of debt / (Total value of debt + Total value of equity)

Value of First issue of bond is computed as follows:

= 103% x \$ 280,000

= \$ 288,400

Value of second issue of bond is computed as follows:

= 108% x \$ 380,000

= \$ 410,400

Total market value of debt will be as follows:

= \$ 288,400 + \$ 410,400

= \$ 698,800

Total value of common stock is computed as follows:

= 18,100 x \$ 72

= \$ 1,303,200

So, the weight of debt is computed as follows:

= \$ 698,800 / (\$ 698,800 + \$ 1,303,200)

= 34.91% Approximately

Feel free to ask in case of any query relating to this question

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