Empire Plumbing Supply has 100,000 shares of common stock outstanding at a price of $37 a share. It also has 6,000 shares of preferred stock outstanding at a price of $30 a share. There are 5,000 bonds 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 110 percent of par. What is the capital structure weight of the common stock?

The capital structure weight of the common stock for Empire Plumbing Supply is 39.45%.

Here, we are to calculate the capital structure weight of the common stock.

Market value of common stock = Shares of common stock *  Price of common stock

Market value of common stock = 100,000 shares * $37

Market value of common stock = $3,700,000

Market value of preferred stock = Shares of preferred stock * price of preferred stock

Market value of preferred stock = 6000 * $30

Market value of preferred stock = $180,000

Market value of bonds = Number of bonds * Par value * Selling rate

Market value of bonds = 5,000 * $1,000 * 110%

Market value of bonds = $5,500,000

Total capital = Market value of common stock + Market value of preferred stock + Market value of bonds

Total capital = $3,700,000 + $180,000 + $5,500,000

Total capital = $9,380,000

Capital structure weight of common stock = Market value of common stock / Total capital

Capital structure weight of common stock = $3,700,000 / $9,380,000

Capital structure weight of common stock = 0.3945

Capital structure weight of common stock = 39.45%

Therefore, the capital structure weight of the common stock for Empire Plumbing Supply is 39.45%.

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 39.45%

Explanation:

For the computation of capital structure weight of the common stock first we need to follow some steps which is shown below:-

Step 1

The Market value of common stock = Shares of common stock × Price of common stock

= 100,000 × $37

= $3,700,000

Step 2

The Market value of preferred stock = Shares of preferred stock × price of preferred stock

= 6000 × $30

= $180,000

Step 3

The Market value of bonds = No. of bonds × par value × Selling rate

= 5,000 × $1,000 × 110%

= $5,500,000

Step 4

Total capital = $3,700,000 + $180,000 + $5,500,000

= $9,380,000

and finally

Capital structure weight of common stock = market value of common stock ÷ total capital

= $3,700,000 ÷ $9,380,000

= 0.3945

or

= 39.45%

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