Calculate the value of long-term debt given the following information: total debt = $100,000; debt/equity ratio = 0.50; long-term debt ratio = 0.32.
A) $72,000
B) $74,000
C) $76,000
D) $78,000
E) $94,118

Question

Quizplus · Accepted Answer

The debt/equity ratio is 0.50, which means that for every $1 of equity, there is $0.50 of debt. This implies that the equity is twice the debt, so equity = $200,000. Total debt is given as $100,000. The long-term debt ratio is the proportion of long-term debt to total capital (debt + equity), which is 0.32. Therefore, long-term debt = 0.32 * (total debt + equity) = 0.32 * ($100,000 + $200,000) = 0.32 * $300,000 = $96,000. However, there seems to be a mistake in my calculation as none of the options match. Correcting my approach: if the total debt is $100,000 and this is the only debt figure given, and we're looking for how it's divided or its relationship to long-term debt without specific division information, we need to directly apply the long-term debt ratio. However, without direct percentages or a clear mistake in the initial explanation, the calculation provided doesn't directly lead to a correct answer based on the options given. Re-evaluating the approach considering the total capital and the ratios provided should give us a clearer path to the correct answer, which should align with the long-term debt ratio and the given total debt, but the initial explanation incorrectly applied the ratios without directly solving for long-term debt based on the given options. The correct approach involves understanding that the long-term debt ratio is not directly applicable without considering the total capital structure, and my initial explanation failed to accurately calculate long-term debt based on the provided options and information. Given the mistake in calculation and the options provided, the correct calculation should involve re-evaluating the relationship between total debt, equity, and the long-term debt ratio correctly, but the initial explanation did not accurately resolve this.

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