Question

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. a. 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.) Equity/Value Debt/Value b. 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.) Equity/Value Debt/Value c. Which are more relevant, the book or market value weights? O Market value Book value

Answer 1

Particulars common stock first issue second issue Total Book value Book value weight amount [millions ] (amount/total) $30.00 0.2308 $65.00 0.5000 $35.00 0.2692 $130.00 Weight of equity on book value basis = Weight of debt on book value basis = 0.2308 0.7692 Particulars common stock first issue second issue Total market value Market value weight amount [millions ] (amount/total) $468.00 0.8228 $63.70 0.1120 $37.10 0.0652 $568.80 Weight of equity on market value basis = Weight of debt on market value basis = 0.8228 0.1772 market value