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At 31 December 2017 Bagsack Co had equity of €9
At 31 December 2017 Bagsack Co had equity of €9.75 million, long-term loan notes of €3.125 million and longterm lease (=finance lease) obligations of €1.5 million.
During the year to 31 December 2018 equity increased by €2.8 million, €1.725 million of longterm loan notes were paid back and longterm lease obligations increased by 450,000.
What is Bagsack Co's level of gearing (debt/ debt +equity) at 31 December 2018?
Group of answer choices
35%
10%
28%
21%
Expert Solution
Equity beginning balance = 9,750,000
Long-term notes (beginning balance) = 3,125,000
Long-term lease finance obligations = 1,500,000
.
Equity Ending balance = 9,750,000 + 2,800,000 = 12,550,000
Long-term notes Ending balance = 3,125,000 - 1,725,000 = 1,400,000
Long-term lease finance obligations = 1,500,000 + 450,000 = 1,950,000
So, Total Equity = 12,550,000
Total Debt = (1,400,000 + 1,950,000) = 3,350,000
Debt/ (Debt + Equity) = 3,350,000 / (3,350,000 + 12,550,000)
Debt/ (Debt + Equity) = 0.21 or 21%
Debt/ (Debt + Equity) = 21%
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