Dinklage Corp. has 8 million shares of common stock outstanding. The current sha

Question

Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $74, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon of 9 percent, and sells for 95 percent of par. The second issue has a face value of $60 million, a coupon of 10 percent, and sells for 108 percent of par. The first issue matures in 24 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.)

Which are more relevant, the book or market value weights?

Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $74, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon of 9 percent, and sells for 95 percent of par. The second issue has a face value of $60 million, a coupon of 10 percent, and sells for 108 percent of par. The first issue matures in 24 years, the second in 8 years.

Explanation / Answer

Book value if Equity = 8*10^6*5 = $40 Mn

Book Value of Debt =$80 Mn +$60 Mn = $140 Mn

Equity/Value = 40/180 =.22

Debt /Value =140/180 =0.777

Market value of equity = 8*10^6*74= $592 Mn

Market value of Debt = .95*80 +1.08*60 =140.8

Total Value =732.8

Equity/Value =.8078

Debt /Value=.1921

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