A firm has current assets that could be sold for their book value of $10 million. the book value of its fixed assets is $60 mill

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4 years ago

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A firm has current assets that could be sold for their book value of $10 million. the book value of its fixed assets is $60 mill

ion, but they could be sold for $90 million today. the firm has total debt with a book value of $40 million, but interest rate declines have caused the market value of the debt to increase to $50 million. what is the firm's market-to-book ratio

Business

1 answer:

Firdavs [7] · Answer 1 · 2022-01-15T18:24:02+03:00

Firm’s market to book value ratio can be calculated by dividing the market value of the firm’s equity by the book value of the fir’s equity.

Market value of the firm’s equity = market value of current assets + market value of book value – market value of firm’s debt

= $10 million + $90 million – 50 million

= $50 million

Book value of firm’s equity = Book value of current assets + book value of fixed assets – book value of liabilities

= $10 million + $60 million – 40 million

= $30 million

Market to book value ratio = $50 million/ 30 million

= 1.67 times