A Quebec City ﬁrm has a debt-equity ratio of .65. From this, you can determine that the ﬁrm has _____ in assets for every $1 in equity.
A) $.54
B) $.65
C) $1.54
D) $1.65
E) $2.54

Question

Quizplus · Accepted Answer

The debt-equity ratio is defined as total debt divided by total equity. Therefore, if the debt-equity ratio is .65, it means that for every $1 in equity, the firm has $0.65 in debt. The total assets of the firm are equal to the sum of the equity and debt. Therefore, the assets-to-equity ratio is:

Assets/Equity = (Debt + Equity)/Equity = 1 + Debt/Equity = 1 + 0.65 = 1.65

This means that the firm has $1.65 in assets for every $1 in equity.

A Quebec City ﬁRm Has a Debt-Equity Ratio of