If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of .75 then:

Question

Quizplus · Accepted Answer

To maintain the same debt-equity ratio, we need to increase both debt and equity by a certain amount. We can find the amount of extra debt needed by multiplying the equity increase by the debt-equity ratio:

Equity increase = $400,000
Debt-equity ratio = 0.75
Extra debt = (Equity increase) x (Debt-equity ratio) = $400,000 x 0.75 = $300,000

Therefore, the total debt increase needed to maintain the ratio is $300,000, and the answer is C.

If the Pro Forma Balance Sheet Shows That Total Assets