Question

Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 220,000 shares outstanding, and its debt-to-assets ratio was 46%. How much debt was outstanding? Select the correct answer. a. $4,262,849 b. $4,264,188 c. $4,263,519 d. $4,263,184 e. $4,263,853

Answer 1

Answer: Option (c) is correct.

Explanation:

Given that,

EPS = $3.50

Book value per share = $22.75

Shares outstanding = 220,000

Debt-to-assets ratio = 46%

Total Equity (Book Value) = Book value per share × Shares outstanding

                    = $22.75 × 220,000

                    = $5,005,000

Total Assets = $\frac{Total\ Equity}{1 - Debt\ to\ assets\ ratio}$

                     =  $\frac{5,005,000}{1 - 0.46}$

                     = $9,268,518.52

Debt outstanding = Total Assets - Total Equity

                              = $9,268,518.52 - $5,005,000

                              = $4,263,518.52

                              = $4,263,519 (approx)