# Kaye's Kitchenware has a market/book ratio equal to 1.200. The firm's stock price is 12.30 USD/share. There are 4.60 million shares outstanding. The firm's total capital is 111 million and the firm finances with only debt and common equity. Calculate the debt to equity ratio."

Question
44 views

Kaye's Kitchenware has a market/book ratio equal to 1.200. The firm's stock price is 12.30 USD/share. There are 4.60 million shares outstanding. The firm's total capital is 111 million and the firm finances with only debt and common equity. Calculate the debt to equity ratio."

check_circle

Step 1

Market/book ratio of equity = 1.200

Hence, MVE / BVE = 1.2

Current stock price, P = \$ 12.30 / share

Nos. of shares outstanding = N = 4.60 million

Step 2

Hence, MVE = P x N = 12.30 x 4.60 = \$ 56.58 million

Also, MVE / BVE = 1.2

Hence, BVE = MVE / 1.2= 56.58 / 1.2 = \$ 47.15 mn

Step 3

The firm's total capital is 111 million and the firm finances with only debt and common equity.

Hence, BVE + BVD = \$ 111 million

Hence, BVD = 111 – 47.15 = \$ 63.85 million

Hence, debt to equity ratio = BVD / BVE = 63.85 / 47.15 = 1.3542

Note: The question doesn&r...

### Want to see the full answer?

See Solution

#### Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in 