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Christie's Train Shoppe has 15,000 shares of common stock outstanding at a price of $11 a share. It also has 2,000 shares of preferred stock outstanding at a price of $34 a share. There are 50 bonds outstanding that have a 7.5 percent semiannual coupon. The bonds mature in 6 years, have a face value of $1,000, and sell at 96 percent of par. What is the capital structure weight of the preferred stock

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Answer:

The capital structure weight of the preferred stock = 24.2%

Explanation:

To get the capital structure weights, market values should be used.

Weight of preferred stock = Value Of Preferred Stock divided by Total Capital

and Total Capital = Value of Common stock+Value of Preferred Stock+Value of bonds

Value of common stock = 15,000 shares *$11 = $165,000

Value of preferred Stock =  2,000 shares*$34= $68,000

Value of bonds= 50 bonds *96% of par =  50 bonds *$1,000*0.96=  $48,000        

Weight of preferred stock =[tex]\frac{68,000}{165,000+68,000+48,000}=0.24199[/tex]

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