Which of the following is correct for a firm with a debt-equity ratio of .45 if long-term debt equals 500 and equity equals 2,000? The firm has:
A)Current liabilities that is valued at 400
B)Current assets that is valued at 400
C)Retained earnings that are valued at 900
D)preferred stock of 400 Total Debt = Current Debt + Long Term Debt
Debt/Equity Ratio = .45
Therefore, Debt/Equity Ratio x Shareholder Equity = Value of Total Debt
)45 x 2,000 = 900 Total Debt
Therefore, if Total Debt = 900 = Current Debt + Long Term Debt
900 = Current Debt + 500

Question

Quizplus · Accepted Answer

The debt-equity ratio of .45 means that for every dollar of equity, the firm has 45 cents of debt. Using the given values, the total debt of the firm is calculated to be 900. If we subtract the long-term debt of 500, we get the current debt of 400. However, this information is not explicitly given in the question. The only information we have is the value of long-term debt and equity. Therefore, the correct answer is B, which is the only option that can be calculated using the given information. The value of current assets cannot be calculated from the given information. Retained earnings and preferred stock are also not relevant to the calculation of debt-equity ratio or total debt.

Which of the Following Is Correct for a Firm with a Debt-Equity