Use the table for the question(s)below.
Consider the following balance sheet:
-If in 2019 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then using the market value of equity,the debt to equity ratio for Luther in 2009 is closest to:
A)1.47.
B)1.78.
C)2.31.
D)4.07.

Question

Use the table for the question(s)below.
Consider the following balance sheet:  
-If in 2019 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then using the market value of equity,the debt to equity ratio for Luther in 2009 is closest to:
A)1.47. 
B)1.78. 
C)2.31. 
D)4.07.

Quizplus · Accepted Answer

To find the debt to equity ratio, we need to divide total debt by total equity. 
From the balance sheet, we see that in 2019, total debt is $142.2 million and total equity is $175.2 million. 
Thus, debt to equity ratio = $142.2 million / $175.2 million = 0.8125
To find the market value of equity, we need to multiply the number of outstanding shares by the market price per share. 
Market value of equity = 10.2 million shares x $16 per share = $163.2 million
Now, we can calculate the new debt to equity ratio using market value of equity: 
Debt to equity ratio = $142.2 million / $163.2 million = 0.8719
So, the closest answer choice is B) 1.78.

Use the Table for the Question(s)below