Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and co

Question

MaRussiya [10]

1 year ago

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Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and co

mmon equity. What is the company’s debt ratio?

Business

1 answer:

vfiekz [6] · Answer 1 · 2024-07-05T18:30:22+03:00

If Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. The company’s debt ratio is 0.6.

<h3>Debt ratio</h3>

Using this formula to determine or find the company debt ratio

TA/TA-DC = 2.5

Where:

TA = Total assets

DC = Debt capital

Hence,

TA/TA-DC = 2.5

TA = 2.5(TA) - 2.5(DC)

2.5(DC) = 1.5(TA)

DC/TA= 1.5/2.5

DC/TA= 0.6

Therefore If Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. The company’s debt ratio is 0.6.

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