Question

Karen Price has determined that her net worth is $58,000. She has also determined that the face value of her mortgage is $89,000. She has determined that the face value of the rest of her debt is $18,000. What is Karen's debt-to-equity ratio? Multiple Cholce 184 153 3.22 4.94 0.31

Answer 1

A. 1.84

Explanation:

We have been given that Karen Price's net worth is $58,000. The face value of her mortgage is $89,000. The face value of the rest of her debt is $18,000.

`\text{Debt to equity ratio}=\frac{\text{Total liabilities}}{\text{Total shareholder's equity}}`

We know that total liabilities include short term debt and long-term debt.

`\text{Debt to equity ratio}=(\$89,000+\$18,000)/(\$58,000)`

`\text{Debt to equity ratio}=(\$107,000)/(\$58,000)`

`\text{Debt to equity ratio}=1.8448`

`\text{Debt to equity ratio}\approx 1.84`

Therefore, Karen's debt-to-equity ratio 1.84 and option A is the correct choice.