Dinklage Corp. has 9 million shares of common stock outstanding. The current sha

Question

Dinklage Corp. has 9 million shares of common stock outstanding. The current share price is $88, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon of 5 percent, and sells for 98 percent of par. The second issue has a face value of $55 million, a coupon of 6 percent, and sells for 106 percent of par. The first issue matures in 20 years, the second in 8 years.

What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

Dinklage Corp. has 9 million shares of common stock outstanding. The current share price is $88, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon of 5 percent, and sells for 98 percent of par. The second issue has a face value of $55 million, a coupon of 6 percent, and sells for 106 percent of par. The first issue matures in 20 years, the second in 8 years.

Explanation / Answer

a) Equity =9mn*7= $63 mn

Debt=80mn+55mn =$135 mn

Value=63+135=$198mn

Equity/value=0.3182

Debt/ value=0.6818

b)

Equity =9mn*88= $792 mn

Debt=(98%80mn)+(106%55mn) =$136.7 mn

Value=792+136.7=$928.7mn

Equity/value=0.8528

Debt/ value=0.1472

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