LibreOffice has 85,000 shares of common stock outstanding at a price of $62 a sh

ID: 2721358 • Letter: L

Question

LibreOffice has 85,000 shares of common stock outstanding at

a price of $62 a share. They also have 10,000 shares of preferred stock

outstanding at a price of S85 a share. The firm has 10,000 8 percent,

20-year bonds outstanding, with a face value of $1,000, currently

trading at 101 percent of face value. The bonds pay interest

semiannually. What is the capital structure weight of the firm's debt if

the tax rate is 35 percent?

a, 32.00 percent

b, 36.16 percent

c. 40.48 percent

d. 51.75 percent

e, 62.27 percent

Ans (e)

Capital structure weights

common stock 85,000*62 =5,270,000

Preferred stock 10,000*85 = 850,000

Bonds 10,000*1000*101% =10,100,000

16,220,000

weights of debt 10,100,000/16,220,000

=62.27%

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