A firm has current assets that could be sold for their book value of $25 million
ID: 2624439 • Letter: A
Question
A firm has current assets that could be sold for their book value of $25 million. The book value of its fixed assets is $64 million, but they could be sold for $94 million today. The firm has total debt with a book value of $44 million, but interest rate declines have caused the market value of the debt to increase to $54 million. What is the ratio of the market value of equity to its book value? (Round your answer to 2 decimal places.)
A firm has current assets that could be sold for their book value of $25 million. The book value of its fixed assets is $64 million, but they could be sold for $94 million today. The firm has total debt with a book value of $44 million, but interest rate declines have caused the market value of the debt to increase to $54 million. What is the ratio of the market value of equity to its book value? (Round your answer to 2 decimal places.)
Explanation / Answer
Book value of equity = Book value of assets - Book value of debt
= ($25 million + $64 million) - $44 million
= $89 million - $44 million
= $45 million
Market value of equity = Market value of assets - Market value of debt
= ($25 million + $94 million) - $54 million
= $119 million - $54 million
= $65 million
Market to book ratio = Market value / Book value
= $65 million / $45 million
= 1.44 times (Answer)
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