Calculate the value of short-term debt given the following information: total debt = $320,000; debt/equity ratio = 0.80; long-term debt ratio = 0.3750.
A) $65,000
B) $70,000
C) $75,000
D) $80,000
E) $85,000

Question

Quizplus · Accepted Answer

The total debt is given as $320,000. The debt/equity ratio is 0.80, which means that for every $1 of equity, there is $0.80 of debt. The long-term debt ratio is 0.3750, indicating that 37.5% of the total debt is long-term. Therefore, short-term debt can be calculated as the remainder of total debt after accounting for long-term debt. First, calculate the long-term debt: $320,000 * 0.3750 = $120,000. Then, subtract the long-term debt from the total debt to find the short-term debt: $320,000 - $120,000 = $200,000. However, there seems to be a mistake in my calculation as none of the options match this result. Let's correct the approach:Given:- Total debt = $320,000- Debt/Equity ratio = 0.80- Long-term debt ratio = 0.3750 (This means 37.5% of the total debt is long-term)To find the short-term debt, we first need to calculate the long-term debt using the long-term debt ratio and then subtract it from the total debt.Long-term debt = Total debt * Long-term debt ratioLong-term debt = $320,000 * 0.3750 = $120,000Short-term debt = Total debt - Long-term debtShort-term debt = $320,000 - $120,000 = $200,000It appears there was an error in my initial calculation and explanation, as the correct short-term debt value does not match any of the provided options based on the given ratios and total debt. The correct approach should involve understanding that the discrepancy lies in the interpretation of the given ratios and their application to the calculation of short-term debt. Without additional information or a correct interpretation of the given ratios, the calculation provided does not accurately reflect the options given.

Calculate the Value of Short-Term Debt Given the Following Information