Question

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 $33 50 million in assets with $32.00 million in debt and $1.50 million in equity LotsofEquity, Inc. finances its $33.50 million in assets with $1.50 million in debt and $32.00 million in equity Calculate the debt ratio. (Round your answers to 2 decimal places.)

Answer 1

Debt ratio:

LotsofDebt, Inc. = $32.00 / $33.50 = 95.52%

LotsofEquity, Inc. = $1.50 / $33.50 = 4.48%

Debt-to-equity:

LotsofDebt, Inc. = $32.00 / $1.50 = 21.33 times

LotsofEquity, Inc. = $1.50 / $32.00 = 0.05 times

LotsofDebt =