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9 October, 23:12

Dinklage Corp. has 4 million shares of common stock outstanding. The current share price is $83, 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 of 6 percent, and sells for 98 percent of par. The second issue has a face value of $60 million, a coupon of 7 percent, and sells for 106 percent of par. The first issue matures in 21 years, the second in 3 years. a. What are the company's capital structure weights on a book value basis? Equity/Value = Debt/Value=

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  1. 10 October, 00:23
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    0.175824; 0.8242

    Explanation:

    Equity 1 = Shares of common stock outstanding * Book value per share

    = 4,000,000 * $8

    = $32,000,000

    Debt 1 = $90,000,000

    Debt 2 = $60,000,000

    Total value = Equity 1 + Debt 1 + Debt 2

    = $32,000,000 + $90,000,000 + $60,000,000

    = $182,000,000

    Weight of equity 1:

    = Equity 1 : Total value

    = $32,000,000 : $182,000,000

    = 0.175824

    Weight of debt 1:

    = Debt 1 : Total value

    = $90,000,000 : $182,000,000

    = 0.494505

    Weight of debt 2:

    = Debt 1 : Total value

    = $60,000,000 : $182,000,000

    = 0.32967

    Equity/Value = 0.175824

    Debt/Value = Weight of debt 1 + Weight of debt 2

    = 0.494505 + 0.32967

    = 0.8242
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