At year-end 2002, Yung.com had notes payable of $1200, accounts payable of $2400, and long-term debt of $6000. Corresponding entries for 2003 are $1600, $2000, and $6000. 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

$800

$500

 

 

 

Marketable securities

400

300

 

 

 

Accounts receivable

900

800

 

 

 

Inventory

1800

2000

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

 

 

Net Fixed Asset (Plant&Equipment)

$6000

$2000

 

 

 

 

 

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

To calculate the **Market-Value-to-Book-Value (MV/BV) ratio**, we need both the market value of the company and its book value.

### Step 1: **Market Value Calculation**
The market value of a company is calculated as the stock price multiplied by the number of shares outstanding.

\[
\text{Market Value} = \text{Stock Price} \times \text{Number of Shares}
\]

Given that the stock price at the end of 2003 is $15 and the company has 100 shares outstanding, the market value is:

\[
\text{Market Value} = 15 \times 100 = 1500
\]

### Step 2: **Book Value Calculation**
The book value is calculated as the difference between total assets and total liabilities.

#### Total Assets (2003):
The company's total assets consist of both current and fixed assets. The current and fixed asset values for 2003 are:

- Cash: $500
- Marketable Securities: $300
- Accounts Receivable: $800
- Inventory: $2000
- Net Fixed Assets: $2000

So, total assets in 2003:

\[
\text{Total Assets} = 500 + 300 + 800 + 2000 + 2000 = 5600
\]

#### Total Liabilities (2003):
The company's total liabilities consist of notes payable, accounts payable, and long-term debt. These values for 2003 are:

- Notes Payable: $1600
- Accounts Payable: $2000
- Long-term Debt: $6000

So, total liabilities in 2003:

\[
\text{Total Liabilities} = 1600 + 2000 + 6000 = 9600
\]

#### Book Value:
The book value is total assets minus total liabilities:

\[
\text{Book Value} = \text{Total Assets} - \text{Total Liabilities} = 5600 - 9600 = -4000
\]

### Step 3: **Market-to-Book Ratio Calculation**
Finally, the Market-Value-to-Book-Value ratio is:

\[
\text{MV/BV Ratio} = \frac{\text{Market Value}}{\text{Book Value}}
\]

However, since the book value is negative, this calculation becomes undefined in the usual sense. The company’s liabilities exceed its assets, indicating that the company has a negative equity, meaning that its book value is negative.

So, in this case, **the MV/BV ratio is undefined** due to the negative book value.

Would you like a more detailed explanation, or help with another calculation?

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Here are 5 related questions:
1. What is the significance of a negative book value for a company?
2. How does depreciation affect the book value of fixed assets?
3. What is the relationship between stock price and market value?
4. How do you calculate net income from the data provided?
5. How does the tax rate influence a company’s net income?

**Tip:** A negative book value suggests that the company has more liabilities than assets, which could be a sign of financial distress.

At year-end 2002, Yung.com had notes payable of $1200, accounts payable of $2400, and long-term debt of $6000. Corresponding entries for 2003 are $1600, $2000, and $6000. 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: $800, $500
Marketable securities: $400, $300
Accounts receivable: $900, $800
Inventory: $1800, $2000
Net Fixed Assets: $6000, $2000

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

This detailed solution explains how to calculate the Market-to-Book ratio for Yung.com in 2003 using financial data, including total assets, liabilities, and stock price. Learn the steps to calculate both the market value and book value, and understand why the Market-to-Book ratio is undefined due to a negative book value.

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