Market Value Ratios Fancy Paws' year-end price on its common stock is $20. The firm has total assets of $40 million, the debt ratio is 40%, there is no preferred stock, and there are 2 million shares of common stock outstanding. Calculate the market-to-book ratio for Fancy Paws.
A) 0.47
B) 1.67
C) 8.00
D) 10.00

Question

Quizplus · Accepted Answer

Market-to-book ratio = Market value of equity / Book value of equity 
Book value of equity = Total assets - Total liabilities 
= $40 million - 0.4($40 million) 
= $24 million 
Market value of equity = 2 million x $20 
= $40 million 
Market-to-book ratio = $40 million / $24 million 
= 1.67

Market Value Ratios Fancy Paws' Year-End Price on Its Common