At year-end 2002, Yung.com had notes payable of $1200, accounts payable of $2400, and long-term debt of $9000. Corresponding entries for 2003 are $1600, $2000, and $4000. Asset values are below. During 2003, Yung.com had sales of $5000, cost of goods sold of $400, depreciation of $100, and interest paid of $150. The (average) tax rate is 21%, and all taxes are paid currently. The company has 100 shares of common stock outstanding with a stock price of $15 at the end of 2003. Total dividends paid is $120 in 2003.
 
Current Asset

2002

2003
 
 
 
Cash

$700

$600
 
 
 
Marketable securities

400

300
 
 
 
Accounts receivable

900

800
 
 
 
Inventory

1800

2000
 
 
 
 
 
 
 
 
 
Fixed Assets
 
 
 
 
Net Fixed Asset (Plant&Equipment)

$1000

$3000
 
 
 
 
 
In 2003, the Market-value-to-Book-value ratio is ______________% 

To calculate the **Market-Value-to-Book-Value (MV/BV) ratio**, we need the following information:

- **Market Value (MV)** of equity, which is calculated as:
  \[
  \text{MV of equity} = \text{Stock Price} \times \text{Number of Shares}
  \]

- **Book Value (BV)** of equity, which is calculated from the balance sheet as:
  \[
  \text{BV of equity} = \text{Total Assets} - \text{Total Liabilities}
  \]

Let's calculate each step.

### 1. **Market Value of Equity**
Given:
- Stock price at the end of 2003 = $15
- Number of shares = 100

\[
\text{MV of equity} = 15 \times 100 = 1500
\]

### 2. **Book Value of Equity**

**Total Assets at the end of 2003:**

We add up current and fixed assets at year-end 2003.

\[
\text{Total Current Assets} = \text{Cash} + \text{Marketable Securities} + \text{Accounts Receivable} + \text{Inventory}
\]
\[
\text{Total Current Assets} = 600 + 300 + 800 + 2000 = 3700
\]

The net fixed assets are given as $3000 for 2003.

\[
\text{Total Assets} = 3700 + 3000 = 6700
\]

**Total Liabilities at the end of 2003:**

We add up the short-term and long-term liabilities:
- Notes Payable = $1600
- Accounts Payable = $2000
- Long-term Debt = $4000

\[
\text{Total Liabilities} = 1600 + 2000 + 4000 = 7600
\]

Now, the book value of equity is:

\[
\text{BV of equity} = \text{Total Assets} - \text{Total Liabilities} = 6700 - 7600 = -900
\]

The negative book value of equity occurs because the company has more liabilities than assets in 2003.

### 3. **Market-Value-to-Book-Value Ratio**

Finally, the MV/BV ratio is:

\[
\text{MV/BV ratio} = \frac{\text{Market Value of Equity}}{\text{Book Value of Equity}} = \frac{1500}{-900}
\]

Since the book value is negative, the Market-Value-to-Book-Value ratio is not directly meaningful in a typical sense. In practical terms, this suggests the company is highly leveraged or has significant liabilities.

Would you like more details on these calculations or further breakdowns?

---

Here are 5 follow-up questions:
1. What does a negative book value of equity typically signify about a company's financial health?
2. How can changes in liabilities and assets affect the Market-to-Book ratio?
3. How would a decrease in liabilities impact the book value of equity?
4. What other financial ratios might provide insights into Yung.com's performance in 2003?
5. Why is the stock price still positive despite the negative book value of equity?

**Tip:** A negative book value of equity indicates the company owes more than its assets can cover, a potential red flag for investors.

At year-end 2002, Yung.com had notes payable of $1200, accounts payable of $2400, and long-term debt of $9000. Corresponding entries for 2003 are $1600, $2000, and $4000. Asset values are below. During 2003, Yung.com had sales of $5000, cost of goods sold of $400, depreciation of $100, and interest paid of $150. The (average) tax rate is 21%, and all taxes are paid currently. The company has 100 shares of common stock outstanding with a stock price of $15 at the end of 2003. Total dividends paid is $120 in 2003.

Current Assets:
2002: Cash $700, Marketable securities $400, Accounts receivable $900, Inventory $1800
2003: Cash $600, Marketable securities $300, Accounts receivable $800, Inventory $2000

Fixed Assets:
Net Fixed Asset (Plant&Equipment)
2002: $1000
2003: $3000

In 2003, the Market-value-to-Book-value ratio is ______________%

This problem explores how to calculate the Market-Value-to-Book-Value (MV/BV) ratio for Yung.com in 2003. Learn the steps to compute total assets, liabilities, and why the book value can be negative. Includes financial data, stock price, and formulas for market value and book value calculations. Ideal for finance students.

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