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pickupchik [31]
3 years ago
12

A pro forma balance sheet indicates that total assets will increase by $300,000. If a debt-equity ratio of .5 is maintained, the

n debt must increase by _____.
Business
1 answer:
maria [59]3 years ago
3 0

Answer:

<u>Debt must increase by $100,000</u>

Explanation:

The debt-equity ratio that shows how an organisation's asset is financed by a mixture of shareholders' equity and debt (loans). It can also be called the gearing or risk ratio of financing.

The formula for calculating the debt-equity ratio is total liabilities/shareholders' equity.

The question already states that the debt-equity<u> ratio is 0.5</u>

Therefore, if the company's total asset will increase by $300,000, it means the breakdown of the $300,000 i<u>s that debt will increase by $100,000</u> and equity will increase by $200,000.

How is this derived debt= $100,000,  Equity = $200,000

= $100,000/$200,000= 0.5 which is the debt-equity ratio.

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