Saint Nick Enterprises has 20,100 shares of common stock outstanding at a price of $82 per share. The company has two bond issues outstanding. The first issue has 11 years to maturity, a par value of $2000 per bond, and sells for 98 percent of par. The second issue matures in 25 years, has a par value of $1000 per bond, and sells for 94 percent of par. The total face value of the first issue is $380,000, while the total face value of the second issue is $480,000. What is the capital structure weight of debt?

Question

Business

Christopher Kennedy

24 December, 08:45

Saint Nick Enterprises has 20,100 shares of common stock outstanding at a price of $82 per share. The company has two bond issues outstanding. The first issue has 11 years to maturity, a par value of $2000 per bond, and sells for 98 percent of par. The second issue matures in 25 years, has a par value of $1000 per bond, and sells for 94 percent of par. The total face value of the first issue is $380,000, while the total face value of the second issue is $480,000. What is the capital structure weight of debt?

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Answers (1)

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Madyson Bolton · Answer 1

weight of dbet in the capital structure 33.32%

Explanation:

We must calculate the market value of the firm.

market value of equity:

20,100 shares x $82 per share = $1,648,200 value of equity

market value of the debt:

380,000 x 98% = 372,400

480,000 x 94% = 451,200

total debt: 823,600

Value of the firm:

1,648,200 + 823,600 = 2,471,800

weight of debt:

debt / value = 823,600 / 2,471,800 = 0.333198 = 33.32%