ABC Corp. has a debt to equity ratio of 60%, and a book value of $25 per share. Accounts receivable sold with recourse were $35 million, dividends per share are $1.80, total dividends paid are $12 million. What debt/equity ratio should an analyst use to evaluate ABC Corp. given that the receivables were accounted for by ABC as having been sold.?
of shares = 12 mil/1.8 Equity = 25*#of shares = 25*12mil/1.8 debt = 0.6*25*12mil/1.8 + 35 mil debt/equity = 0.81
Yep…great job maratikus
maratikus 1. does the book value $25 refer to only equity. i thought the value of 25 of per share refers to both equity and debt. if this is true then I found Debt + equity= $167m i.e. (25*12mil/1.8) 2. I am also not sure of the calculation for debt ratio. If we are give 60% as debt to equity ratio i don’t thuink we just take 60% staight as our portion for debt unless it was debt to total capital. to find the debt portion i thougyt we needed to calculate it as .6/1.6=37.5% that our share of debt and 62.5 is our share of equity. If what I am saying is correct then the adjusted debt to equity ratio works out to be 93.53% Debt= .37.5*$167m= 62.63 equity=. 62.5*$167m= 104.38 Adjusted D/E ratio= (62.63+35)/104.38= 93.53 please help!
marati - that’s brilliant