Here I Sit Sofas has 7,400 shares of common stock outstanding at a price of $97 per share. There are 720 bonds that mature in 33 years with a coupon rate of 7.1 percent paid semiannually. The bonds have a par value of $2,000 each and sell at 110 percent of par. The company also has 6,300 shares of preferred stock outstanding at a price of $50 per share. What is the capital structure weight of the debt?

Question

Business

Nancy Peters

15 December, 23:53

Here I Sit Sofas has 7,400 shares of common stock outstanding at a price of $97 per share. There are 720 bonds that mature in 33 years with a coupon rate of 7.1 percent paid semiannually. The bonds have a par value of $2,000 each and sell at 110 percent of par. The company also has 6,300 shares of preferred stock outstanding at a price of $50 per share. What is the capital structure weight of the debt?

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Yusuf Leblanc · Answer 1

The capital structure weight of debt is 60.53% as shown below

Explanation:

In order to determine the weight of the debt financing in the company's structure, it is important to determine the market value of the common stock, preferred stock and the debt financing, afterwards each market value can then be measured as a fraction of total market values of all the three financing arrangements in order to determine the weighting of each.

Financing Volume Mkt price mkt value Weighting

Common stock 7400 $97 717800

Debt 720 $2000*1.1 1584000 60.53

Preferred stock 6300 $50 315000

Total 2616800

The weighting for debt is 1584000/2616800 = 60.53