Question

# Dinklage Corp. has 8.1 million shares of common stock outstanding. The current share price is \$47,...

Dinklage Corp. has 8.1 million shares of common stock outstanding. The current share price is \$47, 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 \$70 million, has a 7 percent coupon, and sells for 94 percent of par. The second issue has a face value of \$54.27 million, has a 7 percent coupon, and sells for 98 percent of par. The first issue matures in 11 years, the second in 6 years.

What is the company's capital structure weight of equity on a book value basis?

 What is the company's capital structure weight of debt on a book value basis?

#### Homework Answers

Answer #1

Book value of Equity = Shares Outstanding * Book value per share

= 8,100,000 * \$5

= \$40,500,000

Book value of first bond issue = \$70,000,000

Book value of second bond issue = \$54,270,000

Total Book Value = Book value of Equity + Book value of first bond issue + Book value of second bond issue

= \$40,500,000 + \$70,000,000 + \$54,270,000

= \$164,770,000

Weight of Equity = Book value of Equity / Total Book Value

= \$40,500,000 / \$164,770,000

= 0.245797

= 24.58%

Wight of Debt = (Book value of First and second bonds issue) / Total Book value

= (\$70,000,000 + \$54,270,000) / \$164,770,000

= \$124,270,000 / \$164,770,000

= 0.754203

= 75.42%

Weight of Equity on book value based capital structure is 24.58%

Weight of Debt on book value based capital structure is 75.42%

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