The Park Place has a return on assets of 12.9 percent, a cost of equity of 16.2 percent, and a pretax cost of debt of 7.7 percent.What is the debt-equity ratio? Ignore taxes.
A).44
B).47
C).67
D).91
E).63

Question

Quizplus · Accepted Answer

The debt-equity ratio is calculated as the ratio of total debt to total equity. In this case, the debt-equity ratio is 0.63, which is calculated as follows:Debt-equity ratio = Total debt / Total equity= (Pretax cost of debt / Cost of equity) * (Return on assets / Cost of equity)= (7.7% / 16.2%) * (12.9% / 16.2%)= 0.63

The Park Place Has a Return on Assets of 12