Market Value of Debt, Leverage and Debt-to-equity Ratio, and Marginal Corporate Tax Rate

Market value of equity
The market value of a company is the perceived net worth of the company by investors based on the market price of its shares. Financial analysts multiply the number of outstanding shares by the current market price of the company’s shares to determine a company’s market value. Outstanding shares are obtained from the company’s statement of financial position and the equity statement. This method is applied to all outstanding shares, including common stock and classes of preferred stock.
Thus; Market value of equity = market price of a share * outstanding shares.
Market value of debt
The market value of debt is the amount of money an investor is ready to give up in return for the company’s debt. The value of debt on the statement of financial position differs from the market value of debt. The most appropriate approach in computing the market value of debt is using the finance cost on all debt to represent the coup, while the maturity will b...