Dinklage Corp has 5 million shares of common stock outstandi

Dinklage Corp. has 5 million shares of common stock outstanding. The current share price is $84, 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 $60 million, a coupon of 7 percent, and sells for 94 percent of par. The second issue has a face value of $35 million, a coupon of 8 percent, and sells for 107 percent of par. The first issue matures in 22 years, the second in 4 years.

Dinklage Corp. has 5 million shares of common stock outstanding. The current share price is $84, 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 $60 million, a coupon of 7 percent, and sells for 94 percent of par. The second issue has a face value of $35 million, a coupon of 8 percent, and sells for 107 percent of par. The first issue matures in 22 years, the second in 4 years.

9. 6.66 points Dinklage Corp. has 5 million shares of common stock outstanding. The current share price is $84, 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 $60 million, a coupon of 7 percent, and sells for 94 percent of par. The second issue has a face value of $35 million, a coupon of 8 percent, and sells for 107 percent of par. The first issue matures in 22 years, the second in 4 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.) 0.2716 0.7284 Equity/Value DebtValue 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.) lue 0.8155 Debt/Value

Solution

Book value Weights

Book value of equity = Book value per share x no. of shares = $7 x 5 million = $35 million

Book value of debt = book value of first issue + book value of second issue = $60 million + $35 million = $95 million

Total book value = $35 million + $95 million = $130 million

Equity / Value = $35 million / $130 million = 0.269231 or 0.2692

Debt / Value = $95 million / $130 million = 0.730769 or 0.7308

Market value Weights

Face value of first issue = $60 million

First issue has a market price of 94% of par or face value.

Market value of first issue = $60 million x 94% = $56.40 million

Face value of second issue = $35 million

Second issue has a market price of 107% of par or face value.

Market value of second issue = $35 million x 107% = $37.45 million

Total market value of debt = $56.40 million + $37.45 million = $93.85 million

Market value of equity = Total no. of shares x current share price = 5 million x $84 = $420 million

Total market value of company = $420 million + $93.85 million = $513.85 million

Equity / Value = $420 million / $513.85 million = 0.817359 or 0.8174

Debt / Value = $93.85 million / $513.85 million = 0.1826408 or 0.1826