7. Bill Baggins is considering an investment of $127626. He estimates that the NPV of the...
7. Bill Baggins is considering an investment of $127626. He estimates that the NPV of the investment is $37004.01. If he undertakes the investment, he plans to borrow $63813 and put up $63813 of his own money. If he proceeds with the investment as planned, what will be his leverage ratio, L, for this investment? (Percent rounded to 2 decimals.)
ANSWER: L = 0.39
How is this answer calculated?!
Homework Answers
The value of the investment and the NPV are added together to give the value of total assets or total equity
Leverage ratio is the ratio of Total Debt to Total Assets
| Investment | 127626 |
| NPV | 37004.01 |
| Total value of asset (Investment + NPV) | 164630.01 |
| Debt | 63813 |
| Leverage Ratio = Debt / Assets | 0.39 |
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