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. Required: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.)

a. 0.7467 and 0.2534

b. 0.2504 and 0.7495

Explanation:

As per the data given in the question,

The capital structure is a combination of the both debt and equity where debt is the cheapest source while the equity is the expensive source and the risk and return is high in case of equity as compared with the debt

a)

Company's capital structure weight on the basis of Book Value Weight:

Debt = (face value of first issue + face value of second issue) : (face value of first issue + (face value of second issue + year * share value)

= ($90+$75) : ($90+$75+7*$8)

= 0.7467

Equity = 1 - Debt

= 1 - 0.7467

= 0.2534

b)

Company's capital structure weight on the basis of Market Value Weight:

Debt = (face value of first issue * % sale + face value of second issue * sale %) : (face value of first issue * % sale + face value of second issue * sale% + year * current share price)

= ($90 * 98%+$75 * 110%) : ($90 * 98%+$75 * 110%+7*$73)

= 0.2504

Equity = 1 - debt

= 1 - 0.2504

= 0.7495