Question

Use the table for the question(s) below.

a. When using the book value of equity, the debt to equity ratio for Luther in 2018 is closest to:

b. If in 2019 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then using the market value of equity, the debt to equity ratio for Luther in 2019 is closest to:

c. Luther's current ratio for 2019 is closest to:

d. Luther's quick ratio for 2019 is closest to:

Consider the following balance sheet:

Luther Corporation

Consolidated Balance Sheet

December 31, 2019 and 2018 (in $ millions)

Assets	2019	2018		Liabilities and Stockholders' Equity	2019	2018
Current Assets				Current Liabilities
Cash	63.6	58.5		Accounts payable	87.6	73.5
Accounts receivable	55.5	39.6		Notes payable/ short-term debt	10.5	9.6
Inventories	45.9	42.9		Current maturities of long-term debt	39.9	36.9
Other current assets	6.0	3.0		Other current liabilities	6.0	12.0
Total current assets	171.0	144.0		Total current liabilities	144.0	132.0
Long-Term Assets				Long-Term Liabilities
Land	66.6	62.1		Long-term debt	239.7	168.9
Buildings	109.5	91.5		Capital lease obligations	---	---
Equipment	119.1	99.6		Total Debt	239.7	168.9
Less accumulated depreciation	(56.1)	(52.5)		Deferred taxes	22.8	22.2
Net property, plant, and equipment	239.1	200.7		Other long-term liabilities	---	---
Goodwill	60.0	--		Total long-term liabilities	262.5	191.1
Other long-term assets	63.0	42.0		Total liabilities	406.5	323.1
Total long-term assets	362.1	242.7		Stockholders' Equity	126.6	63.6
Total Assets	533.1	386.7		Total liabilities and Stockholders' Equity	533.1	386.7

Answer 1

a. Debt to equity ratio=Total Liabilities/Total equity

Uisng book value of the equity, 2018 Debt to Equity ratio=Total Liabilities/Total equity=323.1/63.6=5.08

b. In 2019, market value of the equity=Outstanding shares*price=10.2 million*$16=$163.2 million

Debt to Equity ratio in 2019 using market value of the equity=406.5/163.2=2.49

c. Current ratio in 2019: Current assets/Current liabilities=171/144=1.19

d. Quick ratio in 2019: (cash+Receivables)/Current liabilities=(63.6+55.5)/144=0.83