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 percent,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

The book value per share can be calculated as follows:

Book value per share = (Total assets – Total liabilities) / Number of common shares

Book value per share = [($40,000,000 x (1 – 0.4)) / 2,000,000] = $12

The market-to-book ratio can be calculated as follows:

Market-to-book ratio = Market value per share / Book value per share

Market-to-book ratio = $20 / $12 = 1.67

Therefore, the correct answer is B) 1.67.

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