Reynolds Travel has $2 billion in total assets. The other side of its balance sheet consists of $0.2 billion in current liabilities, $0.6 billion in long-term debt, and $1.2 billion in common equity. The company has 300 million shares of common stock outstanding, and its stock price is $20 per share. What is Reynolds' market/book ratio?
A) 1.25
B) 2.65
C) 3.15
D) 4.40
E) 5.00

Question

Quizplus · Accepted Answer

The market/book ratio is calculated by dividing the market value of equity by the book value of equity. The market value of equity is found by multiplying the number of shares outstanding by the stock price, which is 300 million shares * $20/share = $6 billion. The book value of equity is given as $1.2 billion. Therefore, the market/book ratio is $6 billion / $1.2 billion = 5.00.

Reynolds Travel Has $2 Billion in Total Assets