Question

McCaffrey's per-share stock price = $40,000 value of equity = $2,000,000 Total value = $3,000,0000 Value...

McCaffrey's per-share stock price = $40,000

value of equity = $2,000,000

Total value = $3,000,0000

Value of debt = $1,000,000

Required:

Discuss the implications of the amount of the per-share stock price for the business or potential business transaction.

Business   Accounting   
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Homework Answers

Answer #1

Calculation:

McCaffrey's Total Value = Value of Equity + Value of Debt

= 2,000,000 $ + 1,000,000 $

= 3,000,000 $

No. of Shares = Value of Equity / Per Share Price

= 2,000,000 / 40,000

= 50 shares

Debt/Equity Ratio = Value of Debt / Value of Equity

= 1,000,000 / 2,000,000

= 0.5

Debt / Capital = Value of Debt / Value of McCaffrey's Business

= 1,000,000 / 3,000,000

= 0.33

Debt/Equity Ratio is 0.5 which means the company is not over-burdened with high debt

Debt/Capital Ratio is 0.33 which reflects that debt only forms 33% of the total company's value and reflects healthy financials.

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