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Question 7 Northern page number 172

SSaline13y ago
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.
John MoffatJohn MoffatTutor13y ago#1
Page 172 of which book?
SSaline13y ago#2
of open tuition notes
John MoffatJohn MoffatTutor13y ago#3
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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