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13 April, 14:55

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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  1. 13 April, 15:16
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    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%
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