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sineoko [7]
2 years ago
5

You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in t

he same industry. LotsofDebt, Inc. finances its $32.50 million in assets with $30.25 million in debt and $2.25 million in equity. LotsofEquity, Inc. finances its $32.50 million in assets with $2.25 million in debt and $30.25 million in equity.
Required:
a. Calculate the debt ratio.
b. Calculate the equity multiplier.
c. Calculate the debt-to-equity.
Business
1 answer:
Eddi Din [679]2 years ago
6 0

Answer:

See below

Explanation:

Lots of debt

1a.

Debt equity ratio

Debt ratio = debt 1 / Asset 1

Debt ratio = $30.25 / $32.50

Debt ratio = 93.1$

1b

Equity multiplier = Asset 1 / Equity 1

Equity multiplier = $32.50 / $2.25

Equity multiplier = 14.4 times

1c

Debt to equity ratio = debt 1 / equity 1

Debt to equity ratio = $30.25 / $2.25

Debt to equity ratio = 13.4%

Lots of equity inc.

2a

Debt equity ratio = debt 2 / asset 2

Debt equity ratio = $2.25 / $32.5

Debt to equity ratio = 6.9%

2b

Equity multiplier = Asset 2 / Equity 2

Equity multiplier = $32.5 / $30.25

Equity multiplier = 1.1 times

2c

Debt to equity ratio = Debt 2 / Equity 2

Debt to equity ratio = $2.25 / $30.25

Debt to equity ratio = 0.1 times

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Data provided in the question:

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