Question

Dinklage Corp. has 7 million shares of common stock outstanding. The current share price is $68, 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 $70 million, a coupon rate of 6 percent, and sells for 97 percent of par. The second issue has a face value of $40 million, a coupon rate of 6.5 percent, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semiannual payments. 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., .3216.) 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., .3216.) EquityValue Debt/Value Equity/Value Debt/Value

Answer 1

Particulars common stock first issue second issue Total Book value Book value weight amount [millions] (amount/total) $56.00 0.3373 $70.00 0.4217 $40.00 0.2410 $166.00 Weight of equity on book value basis = Weight of debt on book value basis = 0.3373 0.6627 Particulars common stock first issue second issue Total market value Market value weight amount [millions ] (amount/total) $476.00 0.8108 $67.90 0.1157 $43.20 0.0736 $587.10 Weight of equity on market value basis = Weight of debt on market value basis = 0.8108 0.1892