Dinklage Corp. has 8 million shares of common stock outstanding. The current sha
ID: 2790991 • Letter: D
Question
Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $73, 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 $85 million, a coupon of 7 percent, and sells for 97 percent of par. The second issue has a face value of $50 million, a coupon of 8 percent, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years.
B). What are the company’s capital structure weights on a market value basis?
Explanation / Answer
Equity value = 8*73 = 584 million
Market value of first bond = 97%*85 = 82.45 million
Market value of secon bond = 108%*50 = 54 million
Total capital = 584 + 82.45 + 54 = 720.45 million
Weight of equity = 584 / 720.45 = 81.0604%
Weight of debt = (82.45 + 54) / 720.45 = 18.9396%
Weight of first bond = (82.45) / 720.45 = 11.4442%
Weight of second bond = (54) / 720.45 = 7.4953%