Asked by Fatin Izzati on Jul 13, 2024
Verified
Calculate the value of total equity given the following information: total debt ratio = 0.76; total assets = $1,250.
A) $300
B) $325
C) $350
D) $375
E) $400
Total Equity
The total net worth of a company, calculated as total assets minus total liabilities.
Total Debt Ratio
A measure of a company's financial leverage calculated by dividing its total liabilities by its total assets.
Total Assets
Refers to the sum of everything of value owned by a business, including cash, securities, receivables, inventories, and fixed assets.
- Acquire knowledge on the basics of equity valuation and the role of debt and equity ratios in affecting it.
Verified Answer
CM
Carley MahurinJul 17, 2024
Final Answer :
A
Explanation :
The total debt ratio is defined as total debt divided by total assets. If the total debt ratio is 0.76, it means that 76% of the assets are financed by debt, leaving 24% (100% - 76%) financed by equity. Therefore, the total equity can be calculated as 24% of total assets: 0.24 * $1,250 = $300.
Learning Objectives
- Acquire knowledge on the basics of equity valuation and the role of debt and equity ratios in affecting it.