You are analyzing the leverage of two firms and you note the following (all values in millions of dollars): a. What is the market debt-to-equity ratio of each firm? b. What is the book debt-to-equity ratio of each firm? c. What is the interest coverage ratio of each firm? d. Which firm will have more difficulty meeting its debt obligations? a. What is the market debt-to-equity ratio of each firm? The market debt-to-equity ratio for Firm A is enter your response here . (Round to two decimal places.) Part 2 The market debt-to-equity ratio for Firm B is enter your response here . (Round to two decimal places.) Part 3 b. What is the book debt-to-equity ratio of each firm? The book debt-to-equity ratio for Firm A is enter your response here . (Round to two decimal places.) The book debt-to-equity ratio for Firm B is enter your response here . (Round to two decimal places.) Part 5 c. What is the interest coverage ratio of each firm? The interest coverage ratio for Firm A is enter your response here . (Round to two decimal places.) The interest coverage ratio for Firm B is enter your response here . (Round to two decimal places.) Part 7 d. Which firm will have more difficulty meeting its debt obligations? (Select from the drop-down menu.) will have more difficulty meeting its debt obligations.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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You are analyzing the leverage of two firms and you note the following (all values in millions of dollars): a. What is the market debt-to-equity ratio of each firm? b. What is the book debt-to-equity ratio of each firm? c. What is the interest coverage ratio of each firm? d. Which firm will have more difficulty meeting its debt obligations? a. What is the market debt-to-equity ratio of each firm? The market debt-to-equity ratio for Firm A is enter your response here . (Round to two decimal places.) Part 2 The market debt-to-equity ratio for Firm B is enter your response here . (Round to two decimal places.) Part 3 b. What is the book debt-to-equity ratio of each firm? The book debt-to-equity ratio for Firm A is enter your response here . (Round to two decimal places.) The book debt-to-equity ratio for Firm B is enter your response here . (Round to two decimal places.) Part 5 c. What is the interest coverage ratio of each firm? The interest coverage ratio for Firm A is enter your response here . (Round to two decimal places.) The interest coverage ratio for Firm B is enter your response here . (Round to two decimal places.) Part 7 d. Which firm will have more difficulty meeting its debt obligations? (Select from the drop-down menu.) will have more difficulty meeting its debt obligations.

You are analyzing the leverage of two firms and you note the following (all values in millions of dollars):
Debt
Book Equity
Market Equity
Operating Income
Interest Expense
Firm A
495.2
300.6
395.5
99.7
51.4
Firm B
80.5
36.1
38.1
8.2
7.5
a. What is the market debt-to-equity ratio of each firm?
b. What is the book debt-to-equity ratio of each firm?
c. What is the interest coverage ratio of each firm?
d. Which firm will have more difficulty meeting its debt obligations?
a. What is the market debt-to-equity ratio of each firm?
The market debt-to-equity ratio for Firm A is
(Round to two decimal places.)
The market debt-to-equity ratio for Firm B is
(Round to two decimal places.)
b. What is the book debt-to-equity ratio of each firm?
The book debt-to-equity ratio for Firm A is
(Round to two decimal places.)
The book debt-to-equity ratio for Firm B is
and t
(Round to two decimal places.)
c. What is the interest coverage ratio of each firm?
The interest coverage ratio for Firm A is
(Round to two decimal places.)
The interest coverage ratio for Firm B is
(Round to two decimal places.)
pund t
d. Which firm will have more difficulty meeting its debt obligations? (Select from the drop-down menu.)
V will have more difficulty meeting its debt obligations.

Expert Solution

Step 1

Market Debt to Equity Ratio = Debt /Market value of Equity

Book Debt to Equity Ratio = Debt /Book value of Equity

Interest Coverage Ratio = EBIT (Earning before Interest and Tax or Say Operating Income) Interest Expense

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