Wharton charges DEI spreads of 9 percent on new common stock issues, 7 percent on new preferred stock issues, and 5 percent on new debt issues.
I need help... I'm not sure which numbers would go to Equity, debt or preferred.
I need to find out for E/V, D/V and P/V...
To determine the proportions of Equity (E/V), Debt (D/V), and Preferred Stock (P/V) in a company's capital structure, you need to calculate the weights assigned to each component. These weights represent the proportion of each component in relation to the total value of the company.
In this case, Wharton charges DEI spreads on new common stock issues (equity), new preferred stock issues (preferred), and new debt issues (debt).
To calculate the weights, you need to follow these steps:
1. Determine the DEI spreads for each component:
- Common stock: 9%
- Preferred stock: 7%
- Debt: 5%
2. Calculate the weights of each component:
- E/V: Divide the DEI spread for common stock (9%) by the sum of the DEI spreads for all components:
E/V = 9% / (9% + 7% + 5%)
- P/V: Divide the DEI spread for preferred stock (7%) by the sum of the DEI spreads for all components:
P/V = 7% / (9% + 7% + 5%)
- D/V: Divide the DEI spread for debt (5%) by the sum of the DEI spreads for all components:
D/V = 5% / (9% + 7% + 5%)
Let's calculate these weights:
E/V = 9% / (9% + 7% + 5%)
P/V = 7% / (9% + 7% + 5%)
D/V = 5% / (9% + 7% + 5%)
Simplifying the calculations, we have:
E/V = 9% / 21%
P/V = 7% / 21%
D/V = 5% / 21%
Therefore, the proportions of Equity, Debt, and Preferred Stock in Wharton's capital structure are as follows:
- E/V: 42.86% (approximately)
- P/V: 33.33% (approximately)
- D/V: 23.81% (approximately)
These weights represent the proportions of equity, debt, and preferred stock relative to the total value of the company.