Question

A firm has current assets that could be sold for their book value of $16 million. The book value of its fixed assets is $55 million, but they could be sold for $85 million today. The firm has total debt with a book value of $35 million, but interest rate declines have caused the market value of the debt to increase to $45 million. What is this firm's market-to-book ratio? (Round your answer to 2 decimal places.)

Answer 1

2.81

Step-by-step explanation:

The first step is to calculate the market value

= 16 million + 85 million

= 101 million

The book value can be calculated as follows

= 16 million + 55 million -35 million

= 36 million

Therefore the firm market to book ratio can be calculated as follows

= 101 million/36 million

= 2.81