Fundamentals of Financial Manageme...
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Fundamentals of Financial Manageme...
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?
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.
Given,
Total capital is $110 million (given).
Formula to calculate debt to capital ratio,
Substitute $52.4 million for total debt (working note) and $110 million for total capital (given) in the above formula,
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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