Question

Dinklage Corp. has 9 million shares of common stock outstanding. The current share price is $75, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $85 million, a coupon of 10 percent, and sells for 96 percent of par. The second issue has a face value of $65 million, a coupon of 11 percent, and sells for 109 percent of par. The first issue matures in 25 years, the second in 9 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

Answer 1

Component	No	Market Price	Bookd value	Market value	Book Value
Equity	9,000,000	75	6	675,000,000	54,000,000
First Bond				81,600,000	85,000,000
Second Bond				70,850,000	65,000,000
Based on book Values
Component		Capital	Weight
Equity		54,000,000	26.47%
First Bond		85,000,000	41.67%
Second Bond		65,000,000	31.86%
		204,000,000
Based on Market Values
Component		Capital	Weight
Equity		675,000,000	81.58%
First Bond		81,600,000	9.86%
Second Bond		70,850,000	8.56%
		827,450,000