Question 7 Northern page number 172

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  • Avatar of Saline
    Saline
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    Can you please tell why is it done like this (.35 X 1/5MVg).

    It could be (.35 X 1/4 MVug) or (.35 X 1/5MVug) or (.35 X 1/5 MVug) on page #172. If it should be any of the above or if what you did is correct.
    Please elaborate whatever is the answer and why it should be.

    Thanks.


    Avatar of johnmoffat
    John Moffat
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    Page 172 of which book?


    Avatar of Saline
    Saline
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    of open tuition notes


    Avatar of johnmoffat
    John Moffat
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    I am sorry – I should have realised that you meant the OpenTuition notes :-(

    The question says that the debt/equity ratio is 1:4. So….if the equity is (for example) 100, then the debt will be 25 (1/4 x 100).
    So….the total value of the company – equity + debt – will be 125.

    So the ratio of debt to total market value will be 25 / 125 = 1/5.

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