B-28 SOLUTIONS
Market-to-book ratio = Share price / Book value per share
PEG ratio = P/E ratio / Growth rate
30. First, we will find the market value of the company’s equity, which is:
Market value of equity = Shares × Share price
The total book value of the company’s debt is:
Total debt = Current liabilities + Long-term debt
Now we can calculate Tobin’s Q, which is:
Tobin’s Q = (Market value of equity + Book value of debt) / Book value of assets
Using the book value of debt implicitly assumes that the book value of debt is equal to the market
value of debt. This will be discussed in more detail in later chapters, but this assumption is generally
true. Using the book value of assets assumes that the assets can be replaced at the current value on
the balance sheet. There are several reasons this assumption could be flawed. First, inflation during
the life of the assets can cause the book value of the assets to understate the market value of the
