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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

DEBT TO CAPITAL RATIO Kaye’s Kitchenware has a market/book ratio equal to 1. Its stock price is $12 per share and it has 4.8 million shares outstanding. The firm’s total capital is $110 million and it finances with only debt and common equity. What is its debt-to-capital ratio?

Summary Introduction

To determine: Debt to capital ratio.

Introduction:

Debt to Capital Ratio:

It represents the proportion of debt capital in the firm’s total capital. Debt to capital ratio is determined by dividing total debt to total capital.

Explanation

Given,

Total capital is $110 million (given).

Formula to calculate debt to capital ratio,

Debt to capital ratio=TotaldebtTotalcapital

Substitute $52.4 million for total debt (working note) and $110 million for total capital (given) in the above formula,

debt to capital ratio=$52.4million$110million=0.48

Here, debt to capital ratio is 0.48 or 48%.

Working note:

Given,

Numbers of outstanding shares are 4.8million.

Stock price per share is $12

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