Question

Dee's Dress Emporium has 60,000 shares of common stock outstanding at a price of $27 a share. It also has 1000 shares of preferred stock outstanding at a price of $20 a share. There are 800bonds 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 97 percent of par. What is the capital structure weight of the common stock? 0.64 0.54 0.67 0.57

Answer 1

Answer -

Statement showing computation of weights of capital structure of Dee's Dress Emporium

Capital Structure	Working	Market Value ($) (A)	Weights (A / $2,416,000)
Common Stock	(60,000 shares @ $27)	16,20,000	0.67
Preferred Stock	(1,000 shares @ $20)	20,000	0.01
Bonds	(800 bonds * $1000 * 97%)	7,76,000	0.32
Total		24,16,000	1

Hence, the capital structure weight of the common stock is 0.67