Milford Inc. has a debt-to-equity ratio of 0.80. It has total shareholders' equity of $2.5 million and current liabilities of $750,000. How much long-term debt is outstanding?

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Quizplus · Accepted Answer

The debt-to-equity ratio is calculated as total debt divided by total shareholders' equity. Given a debt-to-equity ratio of 0.80 and shareholders' equity of $2.5 million, total debt equals 0.80 * $2.5 million = $2 million. Since current liabilities are $750,000, long-term debt is total debt minus current liabilities, which equals $2 million - $750,000 = $1,250,000.