Question

Unt 2 Homework Problem Set Oreo newconnect.mheducation.com/flow/connect Bar RESONEMAS RUNETTE MARRE SKATEBASE ay Mode: Unit 2 Homework Pr... O Roboform Help Save & Exit Subm. Check my work Problem 3-6 Debt Management Ratios (LG3-3) 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 $32.00 million in assets with $30.00 million in debt and $2.00 million in equity. LotsofEquity, Inc, finances its $32.00 million in assets with $2.00 million in debt and $30.00 million in equity. Calculate the debt ratio. (Round your answers to 2 decimal places.)

Answer 1

Lots of debt

Debt equity ratio = debt / total liabilities = 30 / 32 = 0.94

Lots of equity

Debt equity ratio = debt / total liabilities = 2 / 32 = 0.06