Salut Wine and Spirits company's total assets equal $18 million.The book value of Salut's equity is $6 million.Excess cash is $200,000.The market value of Salut's equity is $10 million.Its Debt to Enterprise Value ratio is .5.What is Salut's Debt Ratio?

Question

Quizplus · Accepted Answer

Total liabilities = Total assets - Equity
= $18 million - $6 million
= $12 million

Debt to Enterprise Value ratio = Debt / (Debt + Market Value of Equity)
0.5 = Debt / (Debt + $10 million)
$5 million = Debt

Debt Ratio = Total Debt / Total Assets
= $5 million / $18 million
= 0.2777
≈ 0.67 (rounded to two decimal places)

Therefore, the best choice is B, with a Debt Ratio of 0.67.

Salut Wine and Spirits Company's Total Assets Equal $18 Million