Question

Kaye's Kitchenware has a market/book ratio equal to 1. Its stock price is $15 per share and it has 4.7 million shares outstanding. The firm's total capital is $110 million and it finances with only debt and common equity. What is its debt-to-capital ratio

Answer 1

35.91%

Step-by-step explanation:

The formula and the computation of the debt to capital ratio is shown below:

The debt to capital ratio equals to

= (Debt ÷ total invested capital) × 100

where,

Debt = Total capital - stock price × number of shares outstanding

= $110 million - $15 × 4.7 million shares

= $110 - $70.5 million

= $39.5 million

And, the total invested capital is $110 million

So, the debt to equity ratio is

= $39.5 million ÷ $110 million

= 35.91%