Question

Dinklage Corp. has 7 million shares of common stock outstanding. The current share price is $73, 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 $90 million, a coupon rate of 6 percent, and sells for 98 percent of par. The second issue has a face value of $75 million, a coupon rate of 5 percent, and sells for 110 percent of par. The first issue matures in 22 years, the second in 7 years. Both bonds make semiannual coupon 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., .1616.)
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., .1616.)

Answer 1

A	Formula	Book value	Weights
Common shares	Number of shares*bookvalue per shares	56000000	0.2534
Bond-First issue	Face value	90000000	0.4072
Bond- Second issue	Face value	75000000	0.3394
	TOTAL	221000000
B
	Formula	Market value	Weights
Common shares	Number of shares*Market price per shares	511000000	0.7496
Bond-First issue	Face value*selling percentage	88200000	0.1294
Bond- Second issue	Face value*selling percentage	82500000	0.1210
	TOTAL	681700000

WORKINGS