A firm has current assets that could be sold for their book value of $30 million
ID: 2761117 • Letter: A
Question
A firm has current assets that could be sold for their book value of $30 million. The book value of its fixed assets is $68 million, but they could be sold for $98 million today. The firm has total debt with a book value of $48 million, but interest rate declines have caused the market value of the debt to increase to $58 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 $30 million. The book value of its fixed assets is $68 million, but they could be sold for $98 million today. The firm has total debt with a book value of $48 million, but interest rate declines have caused the market value of the debt to increase to $58 million. What is the ratio of the market value of equity to its book value? (Round your answer to 2 decimal places.)
Explanation / Answer
Market value of total assets = Market value of current assets + Market value of fixed assets
= 30000000+98000000 i.e 128000000
Market value of debt = 58000000
Market value of equity = Market value of total assets - Market value of total debt
= 128000000-58000000 i.e 70000000
Book value of equity = 30000000+68000000-48000000 i.e 50000000
Ratio of market value of equity to its book value = 70000000/50000000 i.e 1.4 times
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