A firm has a total market value of assets of $240 million, of which $24 million is cash. It has debt of $96 million. If the firm were to repurchase $9.6 million of its stock, what would its new debt-to-equity ratio be?
A) 142.86%
B) 71.43%
C) 35.71%
D) 85.71%

Question

Quizplus · Accepted Answer

B) Before Repurchase, Assets = $240 million, Debt = $96 million, Equity = $144 million
After Repurchase, Assets = $230.4 million, Debt = $96 million, Equity = $134.4 million
Debt / Equity = $96 million / $134.4 million = 71.43%

A Firm Has a Total Market Value of Assets of $240