Market Value Ratios Lab R Doors' year-end price on its common stock is $40. The firm has total assets of $75 million, the debt ratio is 60%, there is no preferred stock, and there are 4 million shares of common stock outstanding. Calculate the market-to-book ratio for Lab R Doors.
A) 2.13
B) 3.20
C) 5.33
D) 10.00

Question

Quizplus · Accepted Answer

Market-to-book ratio = Market value of equity / Book value of equity

Book value of equity = Total assets - Total liabilities

Total liabilities = Debt ratio * Total assets = 0.6 * $75 million = $45 million

Book value of equity = $75 million - $45 million = $30 million

Market value of equity = Stock price * Number of shares outstanding = $40 * 4 million = $160 million

Market-to-book ratio = $160 million / $30 million = 5.33

Therefore, the best choice is C, with the calculated market-to-book ratio of 5.33.

Market Value Ratios Lab R Doors' Year-End Price on Its