Luther Corporation Consolidated Balance Sheet 30 June 2017 and 2018 (in $ millions)

-Refer to the balance sheet above. If in 2017, Luther has 5.2 million shares outstanding and these shares are trading at $16 per share, then Luther's market-to-book ratio would be closest to:
A)1.29
B)1.31
C)1.76
D)1.39

Question

Luther Corporation Consolidated Balance Sheet 30 June 2017 and 2018 (in $ millions)
 
-Refer to the balance sheet above. If in 2017, Luther has 5.2 million shares outstanding and these shares are trading at $16 per share, then Luther's market-to-book ratio would be closest to:
A)1.29 
B)1.31 
C)1.76 
D)1.39

Quizplus · Accepted Answer

To calculate the market-to-book ratio, we need to find the market value of equity and the book value of equity.

Market value of equity = Number of shares outstanding x Share price

Market value of equity in 2017 = 5.2 million x $16 = $83.2 million

Book value of equity = Total equity

Book value of equity in 2017 = $450 + $160 + $20 = $630 million

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

Market-to-book ratio in 2017 = $83.2 million / $630 million = 1.31

Therefore, the closest market-to-book ratio is 1.31, which is option B.