Chapter 14, Problem 12QP

Book Value versus Market Value [LO3] Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $85 million, a 7 percent coupon, and sells for 97 percent of par. The second issue has a face value of $50 million, an 8 percent coupon, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years.

a. What are the company’s capital structure weights on a book value basis?

b. What are the company’s capital structure weights on a market value basis?

c. Which are more relevant, the book or market value weights? Why?