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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

MARKET/BOOK RATIO Jaster Jets has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding, and its stock price is $32 per share. What is Jaster’s market/book ratio?

Summary Introduction

To determine: J Company’s market/book ratio.

Market/Book Ratio: It represents the relationship between market price per share and book value per share. More is the market/book ratio, the better is the firm’s condition.

Explanation

Solution:

Given,

Stock price is $32 per share.

Calculated values (working note),

Book value per share is $7.50.

Formula to calculate market/book ratio,

Market/Bookratio=MarketpriceperShareBookvalueperShare

Substitute $32 for market price per share and $7.5 for book value per share in the above formula,

Market/Bookratio=$32$7.50=4.27×

Here, market/book ratio is 4

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