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.)