Paige's Purses, Inc. reported a debt to equity ratio of 2.4 times at the end of 2018. If the firm's total assets at year-end are $27 million, how much of their assets is financed with equity?
A) $7.94m
B) $11.25m
C) $19.06m
D) $64.8m

Question

Quizplus · Accepted Answer

The debt to equity ratio is given as 2.4, which means for every $1 of equity, there is $2.4 of debt. If we let E represent equity, then debt is 2.4E. The total assets are the sum of debt and equity, which is $27 million. Therefore, 2.4E + E = $27 million, simplifying to 3.4E = $27 million. Solving for E, we find E = $27 million / 3.4 = $7.94 million.