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August Ltd has equity capital amounting to N$350 million comprising ordinary share capital N$70million and retained...

August Ltd has equity capital amounting to N$350 million comprising ordinary share capital N$70million and retained earnings of N$280 million. The par value of a fully paid up share is N$10. August Ltd has a profit after tax for the year just ended of N$87.5 million. The current market price of the share is N$110 and the dividend ratio is 60%. Debt amounts to N$420 million. (c) Determine the book value debt-equity ratio and the market value debt-equity ratio

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Answer #1

book value debt-equity ratio =Debt/Equity

=420/385

=1.09

WORKING NOTE

Equity=share sapital+closeing retained earnings

   =70+315 i.e385

closeing retained earnings?=begening retained earning+net income-dividend

=280+87.5 -(87.5*60%)

=315

market value debt-equity ratio=debt/market capitalised equity

   =420/770

      =0.55

?WORKING NOTE

   market capitalised equity=shares out standing*market price per share

? shares out standing =70000000$/10$

? =7000000SHARES

?    I.e7000000*110=770M$

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