Question

Dinklage Corp. has 7 million shares of common stock outstanding. The current share price is $68, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate of 6 percent, and sells for 97 percent of par. The second issue has a face value of $40 million, a coupon rate of 6.5 percent, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semiannual payments.

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., .3216.)

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., .3216.)

Equity/Value _______________

Debt/Value _______________

Answer 1

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., .3216.)

Equity/Value = Shares O/s * Book value / Total value = 7000000 * 8 / 166000000 = 0.3373

Debt/Value = Total Debt value / Total Book Value = (70 M + 40 M) / 166 M = 0.6627

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., .3216.)

Equity/Value = Shares O/s * market value / Total market value = 7000000 * 68 / 587.10 M = 0.8108

Debt/Value = Total Debt value / Total Book Value = (111.1 M) / 587.10 M = 0.1892