Cavendish Corporation's balance sheet reflects total assets of $250 million as of November 30, 2017 and total liabilities of $200 million. Cavendish issues $100 million of preferred stock, receiving $100 million in cash. After issuing the preferred stock Cavendish's debt to equity ratio is:

Question

Quizplus · Accepted Answer

After issuing the preferred stock, Cavendish's total liabilities will be $300 million (original $200 million in liabilities plus $100 million raised through the preferred stock issuance). Total equity will be $50 million (original $50 million in equity plus $100 million raised through the preferred stock issuance minus any associated costs of issuance). 
Thus, the debt to equity ratio will be 6 ($300 million/$50 million), or 1.33 when rounded to the nearest hundredth.

Cavendish Corporation's Balance Sheet Reflects Total Assets of $250 Million