a) You have been asked to calculate the debt ratio for a firm that has the following components to its financing mix:

The firm has 1.2 million shares outstanding, trading at $52 per share.

The firm has $27 million in straight debt, carrying a market interest rate of 9%.

The firm has 19000 10-year convertible bonds outstanding, with a face value of $1,000, a market value of $1090, and a coupon rate of 5.2%.

Assume that bond coupons are paid annually.

Estimate the debt ratio for this firm. [14 marks]

b) You have been asked to estimate he debt ratio for a firm which has two classes of shares outstanding:

45000 shares of class A stock with 2 voting rights per share, and tranding at $101 per share, and 96000 shares of class B stock, with 1/2 voting right per share, trading at $87 per share.

The firm has $4.9m in bank debt and the debt was taken on recently.

Estimate the debt ratio. Why does it matter when the bank det was taken on?