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S&W has 21,000 shares of common stock outstanding at a price of $29 a share. It also has 2,000 shares of preferred stock outstanding at a price of $71 a share. The firm has 7 percent, 12-year bonds outstanding with a total market value of $386,000. The bonds are currently quoted at 100.6 percent of face and pay interest semiannually. What is the capital structure weight of the firm's preferred stock if the tax rate is 34 percent?

Respuesta :

Answer:

weight of preferred stock = 12.49%

Explanation:

equity value = 21000 * 29 = $609000

preferred stock value = 2000 * 71 = $142000

debt value = $386000

total value =equity value + preferred stock value + debt value

total value = 609000 +142000  +386000 =   $1137000

weight of preferred stock[tex]= \frac{142000}{1137000}[/tex]

                                                 = 0.1249

                                                 = 12.49%

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