Info

BV: Debt

BV: Equity

BV: D/(D+E)

MV: Debt

MV: Equity

MV: D/E

Disney

$13,100

$24,219

35.10%

$14,668

$55,101

21.02%

Aracruz

$3,946

$5,205

43.12%

$4,094

$9,189

30.82%

For Disney, the market value debt ratio of 21.02% is much lower than the book value debt ratio of 35.10%. For Aracruz, the market debt ratio is 30.82%, lower than the book debt ratio of 43.12%.

Bookscape's only debt takes the form of operating lease commitments. The bookstore has a 25 years remaining on a real estate leases, requiring the payment of $500,000 a year. The present value of these operating lease commitments, using a 5.50% pre-tax cost of borrowing, is:

Present value of operating lease commitments = 500 (PV of annuity, 5.5%, 25 years)

Bookscape does not have a market value of equity, since it is a private firm. The book value of equity for the firm at the end of 2003 was $ 5 million.

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