NR Industries has 135,000 shares of common stock outstanding. The stock is curre

Question

NR Industries has 135,000 shares of common stock outstanding. The stock is currently selling for $57 a share. The firm also has 2 bond issues outstanding. The first bond issue has a total face value of $300,000, pays 9.5 percent interest annually, and currently sells for 101 percent of face value. The second bond issue consists of 6,000 bonds that are selling for $986 each. These bonds pay 8 percent interest annually and mature in 11 years. The tax rate is 35 percent. What is the capital structure weight of the firm's common stock?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Total Value of Common Stock = 135000*57 = 7695000

Total Value of Bonds = 6000*986 + 300000*101% = 6219000

Total Value of the Firm = 7695000 + 6219000 = 13914000

Weight of Common Stock = Total Value of Common Stock/Total Value of the Firm*100 = 7695000/13914000*100 = 55.30%

Answer is 55.30%

Thanks.

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