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7. Financial Leverage Harrison, Inc., has the following book value balance sheet: Total Debt and Equity Assets Current assets $ 145,000,000 $ 185,000,000 Total debt
7. Financial Leverage Harrison, Inc., has the following book value balance sheet: Total Debt and Equity Assets Current assets $ 145,000,000 $ 185,000,000 Total debt Equity Common stock Capital surplus Accumulated retained earnings Total shareholders' equity Total debt and shareholders equity $ 20,000,000 70,000,000 120,000,000 $ 210,000,000 Net fixed assets $250,000,000 $395,000,000 $395,000,000 Total assets a. What is the debt-equity ratio based on book values? b. Suppose the market value of the company's debt is $195 million and the market value of equity is $590 million. What is the debt-equity ratio based on market values? c. Which is more relevant, the debt-equity ratio based on book values or market values? Why
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