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Homework answers / question archive / You are considering a stock investment in one of two firms (LotsofDebt, Inc
You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in the same industry. LotsofDebt, Inc. finances its $30 million in assets with $29 million in debt and $1 million in equity. LotsofEquity, Inc. finances its $30 million in assets with $1 million in debt and $29 million in equity.
Calculate the debt ratio. (Round your answers to 2 decimal places.)
Calculate the equity multiplier. (Round your answers to 2 decimal places.)
Calculate the debt-to-equity. (Round your answers to 2 decimal places.)
Debt ratio for Lots of debt inc.
Debt ratio= Total debt/ Total assets
= 29 million/ 30 million
= 0.97 times
Debt ratio for Lots of equity inc.
Debt ratio= Total debt/ Total assets
= 1 million/ 30 million
= 0.03 times
Equity multiplier for Lots of debt inc.
Equity multiplier= Total assets/ Total equity
= 30 million/ 1 million
= 30 times
Equity multiplier for Lots of equity inc.
Equity multiplier= Total assets/ Total equity
= 30 million/ 29 million
= 1.03 million
Debt to equity ratio for Lots of Debt inc.
Debt to equity= Debt/ Equity
= 29 million/ 1 million
= 29 times
Debt to equity ratio for Lots of equity inc.
Debt to equity= Debt/ Equity
= 1 million/ 29 million
= 0.03 times
