Fibonacci Property Management's balance sheet shows total liabilities of $5 million and total assets of $13 million. Interest bearing liabilities total $3 million (book value). Excess cash $500,000. The market value of Fibonacci's equity is $21 million. Fibonacci's Debt to Enterprise Value ratio is
A) .38.
B) .23.
C) .125.
D) .106.

Question

Quizplus · Accepted Answer

The Debt to Enterprise Value ratio is calculated as Interest Bearing Liabilities divided by Enterprise Value. Enterprise Value is calculated as Market Value of Equity + Interest Bearing Liabilities - Excess Cash. Here, Enterprise Value = $21 million + $3 million - $0.5 million = $23.5 million. Therefore, the ratio is $3 million / $23.5 million = 0.1277, which rounds to 0.106.

Fibonacci Property Management's Balance Sheet Shows Total Liabilities of $5