Question

4. Jaster Jets has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding, and its stock price is $32 per share. What is Jaster's market/book ratio?

Answer 1

BOOK VALUE OF EQUITY = 6 BILLION = 6000 MILLION

MARKET VALUE OF EQUITY = NO OF SHARES X SHARE PRICE = 800 MILLION SHARES X 32 PER SHARE

MARKET VALUE OF EQUITY = 25600 MILLION

MARKET TO BOOK RATIO = MARKET VALUE OF EQUITY/BOOK VALUE OF EQUITY

MARKET TO BOOK RATIO = 25600//6000 = 4.27 (ROUNDED TO 2 DECIMALS)

NOTE : WE CAN ALSO FIND RATIO BY FINDING BOOK VALUE PER SHARE AND THEN CALCULATE MARKET VALUE PER SHARE DIVIDED BY BOOK VALUE PER SHARE, BOTH WILL GET SAME RESULT

BOOK VALUE PER SHARE = BOOK VALUE OF EQUITY/ NO OF SHARES = 6000 /800 = 7.5

MARKET TO BOOK RATIO = MARKET PRICE/ BOOK VALUE = 32/7.5 = 4.27

Answer : 4.27 (Thumbs up please)