Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1/2.
A)1/3
B)1/2
C)3/5
D)2/3

Question

Quizplus · Accepted Answer

The debt-to-value ratio is calculated as Debt / (Debt + Equity). Given a debt-to-equity ratio of 1/2, this means Debt = 1/2 * Equity. Let's denote Debt as D and Equity as E. So, D = 1/2E. The total value (V) is D + E. Substituting D in the formula for the debt-to-value ratio gives us (1/2E) / ((1/2E) + E) = (1/2) / (1/2 + 1) = 1/3.

Find the Debt-To-Value Ratio for a Firm with a Debt-To-Equity