Dani Corporation has 5 million shares of common stock outstanding. The current share price is $65, and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $50 million, has a coupon rate of 5 percent, and sells for 90 percent of par. The second issue has a face value of $35 million, has a coupon rate of 4 percent, and sells for 102 percent of par. The first issue matures in 20 years, the second in 5 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? Note: 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? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. c. Which are more relevant, the book or market value weights?
Dani Corporation has 5 million shares of common stock outstanding. The current share price is $65, and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $50 million, has a coupon rate of 5 percent, and sells for 90 percent of par. The second issue has a face value of $35 million, has a coupon rate of 4 percent, and sells for 102 percent of par. The first issue matures in 20 years, the second in 5 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? Note: 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? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. c. Which are more relevant, the book or market value weights?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Dani Corporation has 5 million shares of common stock outstanding. The current share
price is $65, and the book value per share is $4. The company also has two bond issues
outstanding. The first bond issue has a face value of $50 million, has a coupon rate of 5
percent, and sells for 90 percent of par. The second issue has a face value of $35 million,
has a coupon rate of 4 percent, and sells for 102 percent of par. The first issue matures in
20 years, the second in 5 years. Both bonds make semiannual coupon payments.
a. What are the company's capital structure weights on a book value basis?
Note: 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?
Note: Do not round intermediate calculations and round your answers to 4 decimal
places, e.g., .1616.
c. Which are more relevant, the book or market value weights?
a. Equity/Value
Debt/Value
b. Equity/Value
Debt/Value
c. More relevant
Answer is not complete.
0.8008
Market value
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VIEWStep 2: a) Compute the company's capital structure weights on a book-value basis.
VIEWStep 3: b) Compute the company's capital structure weights on a market-value basis.
VIEWStep 4: c) Which are more relevant, the book value or market value weight.
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