Dinklage Corp. has 8 million shares of common stock outstanding. The current sha
ID: 2717003 • Letter: D
Question
Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $80, 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 $75 million, a coupon of 9 percent, and sells for 95 percent of par. The second issue has a face value of $45 million, a coupon of 10 percent, and sells for 108 percent of par. The first issue matures in 24 years, the second in 7 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?Explanation / Answer
On Book Value Basis
Total Equity Value= 8*7=56 million
Total Debt Value=75+45= 120 Million
Equity Weight= 56/(56+120)*100=31.82%
Debt Weight=120/176*100=68.18%
On Market Value Basis=
Equity Weight=8*80= 640 Million
Debt Value
Bond 1= 95% of par =95%*75 Million=71.25Million
Bond 2 =108% of par=108%*45=48.6 Million
Equity Weight=640/(640+71.25+48.6)*100=84.23%
Debt Weight=119.85/759.85*100=15.77%