Question
In: Finance
Given the following information about the company: Tax: the company’s tax rate is 35 percent. Debt:...
Given the following information about the company:
Tax: the company’s tax rate is 35 percent.
Debt: 9,000 of 6.5 percent coupon bonds outstanding, $1000 par value, 25 years to maturity, selling for $1,060, the bonds make semiannual payments.
Common Stock: 350,000 shares outstanding, selling for $57 per share; the Beta is 1.05.
Preferred stock: 15,000 shares of preferred stock outstanding, currently selling for $72 per share. The preferred stock pays an annual fixed dividend of $4.
Market: 7 percent market risk premium and 4.5 percent risk-free rate.
What is the company’s capital structure (in percentage terms): debt- preferred- common stock
| A. |
29.48% - 4.24% - 66.28% |
|
| B. |
31.21% - 3.53% - 65.26% |
|
| C. |
21.42% - 7.63% - 70.95% |
|
| D. |
42.5% - 2.3% - 55.2% |
Solutions
Expert Solution
market value of debt = bonds outstanding * market price per bond
market value of preferred stock = shares outstanding * market price per share
market value of common stock = shares outstanding * market price per share
total market value = market value of debt + market value of preferred stock + market value of common stock
weight of debt = market value of debt / total market value
weight of preferred stock = market value of preferred stock / total market value
weight of common stock = market value of common stock / total market value
The answer is B
jeff jeffy answered 1 year agoRelated Solutions
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