Merrimac Brewing company's total assets equal $18 million.The book value of Merrimac's equity is $6 million.The market value of Merrimac's equity is $10 million.It's Debt to Value ratio is .5.What is the book value of Merrimac's interest- bearing debt?

Question

Quizplus · Accepted Answer

The Debt to Value ratio is 0.5, which means the debt is half the size of the total value of the company.

Therefore, the total value of the company can be divided into debt and equity as follows:

Debt + Equity = Total Value
Debt + $6 million = $18 million
Debt = $12 million

The book value of equity is $6 million, so the book value of debt can be calculated as follows:

Book value of debt = Total assets - Book value of equity
Book value of debt = $18 million - $6 million
Book value of debt = $12 million

Therefore, the book value of Merrimac's interest-bearing debt is $12 million, which is option B.

Merrimac Brewing Company's Total Assets Equal $18 Million