A firm has assets of $250 million, of which $25 million is cash. It has debt of $100 million. If the firm were to repurchase $10 million of its stock, what would its new debt-to-equity ratio be?

Question

Quizplus · Accepted Answer

Current equity = $250 million - $100 million = $150 million
New equity (after repurchasing $10 million of stock) = $150 million - $10 million = $140 million
New debt-to-equity ratio = $100 million / $140 million = 0.714 or 71.4%

A Firm Has Assets of $250 Million, of Which $25