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 ago

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