A firm has current assets that could be sold for their book value of $14 million
ID: 2776118 • Letter: A
Question
A firm has current assets that could be sold for their book value of $14 million. The book value of its fixed assets is $52 million, but they could be sold for $82 million today. The firm has total debt with a book value of $32 million, but interest rate declines have caused the market value of the debt to increase to $42 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 $14 million. The book value of its fixed assets is $52 million, but they could be sold for $82 million today. The firm has total debt with a book value of $32 million, but interest rate declines have caused the market value of the debt to increase to $42 million. What is the ratio of the market value of equity to its book value? (Round your answer to 2 decimal places.)
Explanation / Answer
Equity = assets - debt
Book value of equity = book value of current asset + book value of fixed asset - book value of debt
= 14 + 52 - 32 = $ 34
Market value of equity = book value of current asset + market value of fixed asset - market value of debt
= 14 + 82 - 42 = $ 54
Market value of equity/ book value of equity = 54/34 = 1.59
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