Meyer Inc's assets are $625,000, and its total debt outstanding is $185,000. The new CFO wants to establish a debt/assets ratio of 55%. The size of the firm does not change. How much debt must the company add or subtract to achieve the target debt ratio?
A) $158,750
B) $166,688
C) $175,022
D) $183,773
E) $192,962

Question

Quizplus · Accepted Answer

The correct answer is A.The debt-to-asset ratio is calculated by dividing the total debt by the total assets. To achieve a debt-to-asset ratio of 55%, the company must have $625,000 * 0.55 = $343,750 in debt. The company currently has $185,000 in debt, so it must add $343,750 - $185,000 = $158,750 in debt to achieve the target debt ratio.

Meyer Inc's Assets Are $625,000, and Its Total Debt Outstanding