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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