Company One has debt totaling $2,000,000 and total stockholders’ equity of $4,000,000. Company Two has debt totaling $3,000,000 and stockholders’ equity of $5,000,000.
a. Calculate the debt ratio for each company. (Hint: You will find an explanation of the debt ratio and how it is computed in Exhibit 10-8.)
b. Briefly explain the meaning of the debt ratio.
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