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5 September, 08:59

KHD has 1,500 bonds outstanding that are selling for $1,000 each. The common stock is priced at $26 a share and there are 36,000 shares outstanding. What is the weight of the common stock as it relates to the firm's weighted average cost of capital?

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  1. 5 September, 11:42
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    38.42%

    Explanation:

    First, find the market value of debt (bonds in this case);

    market value of debt = price of bond * number of bonds

    = $1,000 * 1,500 = $1,500,000

    First, find the market value of common stock;

    market value of common stock = price per share * number of stock outstanding

    = $26 * 36,000 = $936,000

    Since debt and equity make up KHD company's capital,

    total capital = market value of debt + market value of common stock

    = $1,500,000 + $936,000

    = $2,436,000

    Weight of the common stock = market value of common stock / total capital value;

    = $936,000 / $2,436,000

    = 0.3842 or 38.42% as a percentage

    Therefore, What is the weight of the common stock is 38.42%
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