2 Bartley Barstools has a marketbook ratio equal to 1 Its st

2. Bartley Barstools has a market/book ratio equal to 1. Its stock price is $14 per share and it has 5 million shares outstanding. The firm\'s total capital is $125 million and it finances with only debt and common equity. What is its debt-to-capital ratio?

Solution

Market value of equity:

= 5,000,000×$14

= $70,000,000

Total debt:

= $125-$70

= $55

Debt-to-capital ratio:

= Total debt/Total invested capital

= $55/$125

= 44% or 0.44