Dinklage Corp. has 4 million shares of common stock outstanding. The current sha
ID: 2733214 • Letter: D
Question
Dinklage Corp. has 4 million shares of common stock outstanding. The current share price is $83, 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 $90 million, a coupon of 6 percent, and sells for 98 percent of par. The second issue has a face value of $60 million, a coupon of 7 percent, and sells for 106 percent of par. The first issue matures in 21 years, the second in 3 years. What are the company's capital structure weights on a book value basis? ( Equity/Value, Debt/Value). What are the company’s capital structure weights on a market value basis?( Equity/Value, Debt/Value).
Explanation / Answer
Common Stock = At Market Value = 4 m * $83 = $332 m
At Book Value = 4 m * $8 = $32 m
Debt = First Bond issue = At Market Value = $90 m * 98% = $88.20 m
At Book value = $90 m
Second Bond Issue = At Market Value = $60 m * 106% = $63.60 m
At Book value = $60 m
Company's capital structure weights on a book value basis :
Equity/Value = $32m / ($32m+$90m+$60m) = 0.1758 Debt/Value =($90+$60)m / ($32m+$90m+$60m) = 0.8242
Company's capital structure weights on a Market Value basis :
Equity/Value = $332m / ($332m+$88.20m+$63.60m) = 0.6862 Debt/Value =($88.20+$63.60)m / ($332m+$88.20m+$63.60m) = 0.3138