Final answer:
The debt-to-capital ratio for Kaye's Kitchenware is calculated by subtracting the market value of equity from the total capital to determine the amount of debt, and then dividing the debt by the total capital. The ratio is approximately 0.44, or 44%.
Step-by-step explanation:
The question asks about calculating the debt-to-capital ratio for Kaye's Kitchenware. Given the stock price is $14 per share, with 5.4 million shares outstanding, we first determine the market value of equity, which is $14 multiplied by 5.4 million, amounting to $75.6 million. Since the market/book ratio equals 1, the book value of equity is the same as the market value.
With a total capital of $135 million, and knowing that the capital is composed of debt and common equity, we can calculate the debt portion. The debt is the total capital minus the book value of equity, which is $135 million - $75.6 million, giving us $59.4 million in debt. The debt-to-capital ratio is then the amount of debt divided by the total capital, resulting in $59.4 million / $135 million, which simplifies to a ratio of approximately 0.44, or 44%.