Dinklage Corp. has 6 million shares of common stock outstanding. The current sha

Question

Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $85, 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 $65 million, a coupon of 8 percent, and sells for 95 percent of par. The second issue has a face value of $40 million, a coupon of 9 percent, and sells for 108 percent of par. The first issue matures in 23 years, the second in 5 years. a. 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.) Equity/Value Debt/Value b. 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.) Equity/Value Debt/Value c. Which are more relevant, the book or market value weights? Market value Book value

Explanation / Answer

a)

Book value

Equity = 6*8 = 48 million

Debt = 65 + 40 = 105 million

Value = 48 + 105 = 153 million

Equity value = 48 / 153 = 0.3137

Debt value = 105 / 153 = 0.6863

b)

Market value

Equity = 6*85 = 510 million

Debt = 65*95% + 40*108% = 104.95 million

Value = 510 + 104.95 = 614.95 million

Equity value = 510 / 614.95 = 0.8293

Debt value = 104.95 / 614.95 = 0.1707

c)

Market value

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