Firm Value

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Pfizer (PFE) –

Coca-Cola (KO) –

Construct the Book Debt Ratio and Market Debt Ratio for both firms. Assume that book value of debt approximates its market value. How does debt as a proportion of firm value change as you switch from book to market values?

Book Debt Ratio � Book Debt / (Book Dept + Book Equity)

Market Dept Ratio* – Book Debt / (Book Dept + Market Equity)

  • Assuming that Book Debt Approximates Market Debt