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.
Page 172 of which book?
of open tuition notes
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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