Dani Corporation has 5 million shares of common stock outstanding. The current share price is $71, and the book value per share is $10. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon rate of 4 percent, and sells for 96 percent of par. The second issue has a face value of $65 million, a coupon rate of 3 percent, and sells for 108 percent of par. The first issue matures in 20 years, the second in 9 years. Both bonds make semiannual coupon payments.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter20: Financing With Derivatives
Section: Chapter Questions
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Dani Corporation has 5 million shares of common stock outstanding. The current share
price is $71, and the book value per share is $10. The company also has two bond issues
outstanding. The first bond issue has a face value of $80 million, a coupon rate of 4
percent, and sells for 96 percent of par. The second issue has a face value of $65
million, a coupon rate of 3 percent, and sells for 108 percent of par. The first issue
matures in 20 years, the second in 9 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.)
X Answer is complete but not entirely correct.
a. Equity/Value
0.2584
0.7416
a. Debt/Value
0.7317 x
0.2683 X
b. Equity/Value
b. Debt/Value
Transcribed Image Text:Dani Corporation has 5 million shares of common stock outstanding. The current share price is $71, and the book value per share is $10. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon rate of 4 percent, and sells for 96 percent of par. The second issue has a face value of $65 million, a coupon rate of 3 percent, and sells for 108 percent of par. The first issue matures in 20 years, the second in 9 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.) X Answer is complete but not entirely correct. a. Equity/Value 0.2584 0.7416 a. Debt/Value 0.7317 x 0.2683 X b. Equity/Value b. Debt/Value
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