DinKlage Corp. has 5 million shaded of common stock outstanding. The current sha

Question

DinKlage Corp. has 5 million shaded of common stock outstanding. The current share price is $77. and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of S60 million, a coupon of 6 percent, and sells for 97 percent of par. The second issue has a face value of S30 million, a coupon of 7 percent, and sells for 105 percent of par. The first issue matures in 21 years, the second in A years. 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.) 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.) Which are more relevant, the book o' market value weights?

Explanation / Answer

Shares outstanding 5 million Current share price 77 book value 8 First bond issue 6% 60 second bond issue 7% 30 a) book value company's capital structure weights Value in Million $ Equity (5*8) 0.3077 40 Debt (60+30) 0.6923 90 130 b) Market value company's capital structure weights Value in Million $ Equity (5*77) 0.8110 385 Debt ((60*97%)+(30*105%)) 0.1890 89.7 474.7 The book value is more relevant and static

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