Ask Question
22 March, 14:59

A firm has a long-term debt-equity ratio of. 3. Shareholders' equity is $.96 million. Current assets are $306,000, and the current ratio is 1.8. The only current liabilities are notes payable. What is the total debt ratio? (Round your answer to 2 decimal places.) Total debt ratio ___.

+5
Answers (1)
  1. 22 March, 15:04
    0
    0.32

    Explanation:

    The formula to compute the debt ratio is shown below:

    = Total debt: Total assets

    where,

    Total debt would be

    = Current liabilities + Long term debt

    where,

    Long term debt ratio = Long term debt : shareholder equity

    0.3 = Long term liabilities : $960,000

    So, the long term liabilities would be

    = $960,000 * 0.3

    = $288,000

    And, the current ratio would be equal to

    Current ratio = Total Current assets : total current liabilities

    1.8 = $306,000 : total current liabilities

    So, the total current liabilities would be

    = $170,000

    So, the total debt would be

    =$288,000 + $170,000

    = $458,000

    And, the total assets would be

    = Total debt + shareholder equity

    = $458,000 + $960,000

    = $1,418,000

    Now put these values to the above formula

    So, the ratio would equal to

    = $458,000 : $1,418,000

    = 0.32
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A firm has a long-term debt-equity ratio of. 3. Shareholders' equity is $.96 million. Current assets are $306,000, and the current ratio is ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers