You are analyzing the leverage of two firms and you note the following (all values in millions of dollars):
|
|
Debt
|
Book Equity
|
Market Equity
|
EBIT
|
Interest Expense
|
|
Firm A
|
500
|
300
|
400
|
100
|
50
|
|
Firm B
|
80
|
35
|
40
|
8
|
7
|
- What is the market debt-to-equity ratio of each firm?
- What is the book debt-to-equity ratio of each firm?
- What is the EBIT/interest coverage ratio of each firm?
- Which firm may have more difficulty meeting its debt obligations? Explain.