Assets				Total Debt and Equity
Current Assets		$200,000,000		Total debt equity		$220,000,000
				Common stock		$30,000,000
				Capital Surplus		80,000,000
				Accumulated retained earnings		170,000,000
Net Fixed Asset	$300,000,000			Total shareholders Equity		$280,000,000
Total Asset	$500,000,000			Total debt and shareholders equity		$500,000,000

a) What is the debt equity ratio on book values

b) Suppose the market value of the company's debt is $225 million and the market value of equity is $670million. 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?

Answer rating: 100% (QA)

Solution a The debt equity ratio on book values can be calculated as follows Debt equity ratio Total ... View the full answer