Meyer Inc's total invested capital is $610,000, and its total debt outstanding is $185,000. The new CFO wants to establish a total debt to total capital ratio of 55%. The size of the firm will not change. How much debt must the company add or subtract to achieve the target debt to capital ratio?

a. $164,045

b. $150,500

c. $115,885

d. $165,550

e. $185,115

Question

Cecilia Lee

Business

30 March, 01:38

Meyer Inc's total invested capital is $610,000, and its total debt outstanding is $185,000. The new CFO wants to establish a total debt to total capital ratio of 55%. The size of the firm will not change. How much debt must the company add or subtract to achieve the target debt to capital ratio?

a. $164,045

b. $150,500

c. $115,885

d. $165,550

e. $185,115

+5

Answers (1)

Know the Answer?

Theresa Horne · Answer 1

b. $150,500

Explanation:

debit/capital = $185000/$610000

= 30%

target debt is 55%

debt/capital = 0.55

let the new debt be Y

Y/$610,000 = 0.55

Y = $335,500

excess debt need by company = $335500 - $185000

= $150500

Therefore, The debt that the company must add to achieve the target debt to capital ratio is $150500.