Dryden Inc.has a debt-to-equity ratio of 0.80.It has total shareholders' equity of $2.5 million and current liabilities of $750,000.How much long-term debt is outstanding?

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Quizplus · Accepted Answer

The debt-to-equity ratio is calculated as total debt divided by total shareholders' equity. Given a debt-to-equity ratio of 0.80 and shareholders' equity of $2.5 million, the total debt is 0.80 * $2.5 million = $2 million. Since current liabilities are $750,000, the long-term debt is the total debt minus current liabilities, which is $2 million - $750,000 = $1,250,000.