Bostian, Inc.has total assets of $625,000.Its total debt outstanding is $185,000.The Board of Directors has directed the CFO to move towards a debt-to-assets ratio of 55%.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 target debt-to-assets ratio is 55%, which means that the company's debt should be 55% of its total assets. The company's total assets are $625,000, so its target debt should be $625,000 * 0.55 = $343,750. The company's current debt is $185,000, so it must add $343,750 - $185,000 = $158,750 to achieve the target debt ratio.