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Solution Library
Assessing The Share Value Of A Firm And Measuring A Firm’s Leverage
Question
1. Use the figure for the following question
|
Balance Sheet |
|||
|
Assets |
Liabilities |
||
|
Current Assets |
Current Liabilities |
||
|
Cash |
50 |
Accounts Payable |
42 |
|
Accounts receivable |
22 |
Notes Payable/ short-term debt |
7 |
|
Inventories |
17 |
|
|
|
Total Current Assets |
89 |
Total Current Liabilities |
47 |
|
Long-Term Assets |
|
Long-Term Liabilities |
|
|
Net Property, Plant and Equipment |
121 |
Long-term debt |
128 |
|
Total Long-term Assets |
121 |
Total long-term debt |
128 |
|
|
|
Total Liabilities |
177 |
|
|
|
Shareholders’ Equity |
33 |
|
Total Assets |
210 |
Total Liabilities And Shareholders’ Equity |
210 |
The above table shows a balance sheet for a certain company. All quantities shown are in millions of dollars. If the company has 4 million shares outstanding and these shares are trading at a price of $8.24 per share, what does this tell you about how investors view this firm’s book value?
A. Investors consider that the firm’s market value is worth very much less than its book value
B. Investors consider that the firm’s market value is worth less than its book value
C. Investors consider that the firm’s market value and its book value are roughly equivalent.
D. Investors consider that the firm’s market value is worth more than its book value.
2. Which ratio would you use to measure the financial health of a firm by assessing that firm’s leverage?
A. Debt-equity or equity multiplier ratio
B. Market-to-book ratio
C. Market debt-equity ratio
D. Current or quick ratio
Summary
These short questions belong to Finance. The 1st question is about checking whether the book value of shares is similar to the market value of the shares. The 2nd question is about the measure used to assess the financial health of a firm with its leverage.
Total Word Count 37
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