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K's Bridal Shoppe has 4,000 shares of common stock outstanding at a price of $13 a share. It also has 500 shares of preferred stock outstanding at a price of $22 a share. There are 50 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 98 percent of par. What is the capital structure weight of the common stock?

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Answer:

Capital structure weight of the common stock = 46.43%

Explanation:

To get the capital structure weights, market values should be used.

Weight of common stock = Value Of Common Stock divided by Total Capital

and Total Capital = Value of Common stock+Value of Preferred Stock+Value of bonds

Value of common stock = 4,000 shares *$13 = $52,000

Value of preferred Stock =  500 shares*$22= $11,000

Value of bonds= 50 bonds *98% of par =  50 bonds *$1000*0.98=  $49,000        

Weight of common stock =[tex]\frac{52,000}{52,000+11,000+49,000}=0.464285[/tex]

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