Luther Corporation Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions) Refer to the balance sheet above. When using the book value of equity, the debt-equity ratio for Luther in 2006 is closest to ________.
A)4.51
B)2.25
C)1.13
D)3.16

Question

Luther Corporation Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)  Refer to the balance sheet above. When using the book value of equity, the debt-equity ratio for Luther in 2006 is closest to ________.
A)4.51 
B)2.25 
C)1.13 
D)3.16

Quizplus · Accepted Answer

Debt-Equity Ratio = Total Debt / Book Value of Equity
Using book value of equity, the debt-equity ratio for Luther in 2006 is:
($1,064 + $1,120) / $998 = 2.184
The closest option is B) 2.25.