What appears to be the targeted debt ratio of a firm that issues $15 million in bonds and $35 million in equity to finance its new capital projects?

Question

Quizplus · Accepted Answer

The debt-to-equity ratio is calculated as total debt divided by total equity. In this case, the total debt is $15 million and total equity is $35 million, so the debt-to-equity ratio is 0.43 ($15 million / $35 million). This translates to a debt ratio of 30% (0.43/(1+0.43)). Therefore, the targeted debt ratio of the firm is 30%. Choice B is correct.

What Appears to Be the Targeted Debt Ratio of a Firm