Debt Management Ratios Paige's Purses, Inc. reported a debt to equity ratio of 2.4 times at the end of 2011. If the firm's total assets at year-end are $27 million, how much of their assets is financed with equity?

Question

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The debt to equity ratio of 2.4 means that for every $1 of equity, there is $2.4 of debt. Let E be the equity. Then, debt = 2.4E. Total assets = debt + equity = 2.4E + E = 3.4E. Given total assets are $27 million, we have 3.4E = $27 million. Solving for E gives E = $27 million / 3.4 = $7.94 million.