Which is more relevant on book values or make values

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Balance sheet:

Assets current

Cash $145,000,000

Net fixed assets $250,000,000

total assets $395,000,000

Total debt $185,000,000

Equity:

Common stocks $20,000,000

Capital surplus $70,000,000

Accumulated retained earnings $120,000,000

Total shareholders equity $210,000,000

Total debt and shareholders equity $395,000,000

Problem a. What is the debt-equity ratio based on book values?

Problem b. Suppose the market value of the company's debt is $195 million and the market value of equity is $590 million. What is the debt-equity based on market values?

Problem c. Which is more relevant, the debt-equity ratio based on book values or make values? Why?

Reference no: EM132951738

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