Question

g Kaye's Kitchenware has a market/book ratio equal to 1. Its stock price is $12 per share and it has 5.2 million shares outstanding. The firm's total capital is $120 million and it finances with only debt and common equity. What is its debt-to-capital ratio? Round your answer to two decimal places.

Answer 1

Answer:

48.00%

Explanation:

For computing the debt to capital ratio, first we have to determine the equity value and debt value which is shown below:

Equity value = Number of outstanding shares × stock price per share

                    = 5.2 million shares × $12

                    = $62.4 million

We know,

Total capital = Debt + equity

$120 million = Debt + $62.4 million

So, the debt would be

= $120 million - $62.4 million

= $57.6 million

Now the debt to capital ratio would be

= $57.6 million ÷ $120 million

= 48.00%