Question
Problem 15-7 Financial Leverage Harrison, Inc., has the following book value balance sheet: Assets Total Debt and Equity Current assets $ 160,000,000 Total debt $
Problem 15-7 Financial Leverage
| Harrison, Inc., has the following book value balance sheet: |
| Assets | Total Debt and Equity | |||||
| Current assets | $ | 160,000,000 | Total debt | $ | 180,000,000 | |
| Equity | ||||||
| Common stock | $ | 30,000,000 | ||||
| Capital surplus | 81,000,000 | |||||
| Net fixed assets | 295,000,000 | Accumulated retained earnings | 164,000,000 | |||
| Total shareholders' equity | $ | 275,000,000 | ||||
| Total assets | $ | 455,000,000 | Total debt and shareholders' equity | $ | 455,000,000 | |
| a. | What is the debt-equity ratio based on book values? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) |
| b. | Suppose the market value of the company's debt is $181.2 million and the market value of equity is $705 million. What is the debt-equity ratio based on market values? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) |
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Managerial Economics and Business Strategy
Authors: Michael R. baye
7th Edition
978-0073375960, 71267441, 73375969, 978-0071267441
