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9 November, 00:34

Brookman Inc.'s latest EPS was $2.75, its book value per share was $22.75, it had 315,000 shares outstanding, and its debt/total invested capital ratio was 44%. The firm finances using only debt and common equity and its total assets equal total invested capital.

How much debt was outstanding?

a) $4,586,179 b) $4,827,557 c) $5,081,639 d) $5,349,094 e) $5,630,625

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  1. 9 November, 00:58
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    Option (E) is correct.

    Explanation:

    EPS = $2.75

    Book Value Per Share = $22.75

    Shares Outstanding = 315,000

    Debt Ratio = 44%

    Total equity = Shares outstanding * Book Value Per Share

    = 315,000 * $22.75

    = $7,166,250

    Total assets = Total equity : (1 - Debt Ratio)

    = $7,166,250 : (1 - 0.44)

    = $12,796,875

    Total Dept = Total assets - Equity

    = $12,796,875 - $7,166,250

    = $5,630,625
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