Dinklage Corp. has 8 million shares of common stock outstanding. The current sha
ID: 2760449 • Letter: D
Question
Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $74, 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 $80 million, a coupon of 9 percent, and sells for 95 percent of par. The second issue has a face value of $60 million, a coupon of 10 percent, and sells for 108 percent of par. The first issue matures in 24 years, the second in 8 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?
Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $74, 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 $80 million, a coupon of 9 percent, and sells for 95 percent of par. The second issue has a face value of $60 million, a coupon of 10 percent, and sells for 108 percent of par. The first issue matures in 24 years, the second in 8 years.
Explanation / Answer
Book value if Equity = 8*10^6*5 = $40 Mn
Book Value of Debt =$80 Mn +$60 Mn = $140 Mn
Equity/Value = 40/180 =.22
Debt /Value =140/180 =0.777
Market value of equity = 8*10^6*74= $592 Mn
Market value of Debt = .95*80 +1.08*60 =140.8
Total Value =732.8
Equity/Value =.8078
Debt /Value=.1921