Question

Brookman Inc.’s latest EPS was $2.75, its book value per share was $22.75, it had 315,000 shares outstanding, and its debt/total invested capital ratio was 44%. The firm finances using only debt and common equity and its total assets equal total invested capital.
How much debt was outstanding?

a) $4,586,179 b) $4,827,557 c) $5,081,639 d) $5,349,094 e) $5,630,625

Answer 1

Answer:

Option (E) is correct.

Explanation:

EPS = $2.75

Book Value Per Share = $22.75

Shares Outstanding = 315,000

Debt Ratio = 44%

Total equity = Shares outstanding ×  Book Value Per Share

                    = 315,000  ×  $22.75

                    = $7,166,250

Total assets = Total equity ÷ (1 - Debt Ratio)

                    = $7,166,250 ÷ (1 - 0.44)

                    = $12,796,875

Total Dept = Total assets - Equity

                  = $12,796,875 - $7,166,250

                  = $5,630,625