Problem 14-12 Book Value versus Market Value [LO3] Dinklage Corp. has 6 million
ID: 2752943 • Letter: P
Question
Problem 14-12 Book Value versus Market Value [LO3]
Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $78, 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 $65 million, a coupon of 7 percent, and sells for 98 percent of par. The second issue has a face value of $35 million, a coupon of 8 percent, and sells for 106 percent of par. The first issue matures in 22 years, the second in 5 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.)
Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $78, 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 $65 million, a coupon of 7 percent, and sells for 98 percent of par. The second issue has a face value of $35 million, a coupon of 8 percent, and sells for 106 percent of par. The first issue matures in 22 years, the second in 5 years.
Explanation / Answer
Shares outstanding 6 million Current share price 78 book value 5 First bond issue 7% 65 second bond issue 8% 35 a) book value company's capital structure weights Value in Million $ Equity (6millon shares*5$ ) 30/130= 0.2308 30 (6*5) Debt (65+35) 100/130= 0.7692 100 (65+35) 130 b) Market value company's capital structure weights Value in Million $ Equity (6*78) 0.8228 468 Debt ((65*98%)+(35*106%)) 0.1772 101 569