Question

Robert owns a $214,000 town house and still has an unpaid mortgage of $150,000. In addition to his mortgage, he has the following liabilities:

Visa $638
MasterCard 509
Discover card 405
Education loan 942
Personal bank loan 887
Auto loan 4,720
Total $8,101

Robert’s net worth (not including his home) is about $21,700. This equity is in mutual funds, an automobile, a coin collection, furniture, and other personal property. What is Robert's debt-to-equity ratio? Has he reached the upper limit of debt obligations? Explain.

Answer 1

Answer and Explanation:

The computation of the debt-equity ratio is shown below

Debt - equity ratio = Debt ÷ Equity

= $8,101 ÷ $21,700

= 0.37

As the ratio is lower than 1 so Robert would not reached the upper limit with respect to the debt obligations

Hence, the same is relevant and considered too