A ﬁrm has a total book value of equity of $2 million, a market to book ratio of 2, and a book value per share of $5.00. What is the total market value of the ﬁrm's equity?
A) $10
B) $500,000
C) $2 million
D) $4 million
E) $20 million

Question

Quizplus · Accepted Answer

Market value to book value ratio = market value per share/book value per share
2 = market value per share/5.00
Market value per share = $10.00
Total number of shares = book value of equity/book value per share = 2 million/5.00 = 400,000
Total market value of equity = market value per share x total number of shares = $10.00 x 400,000 = $4 million.

A ﬁRm Has a Total Book Value of Equity of $2