Question

ou are considering a stock investment in one of two firms (A and B), both of which operate in the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity. Calculate the debt-to-equity ratio for the two firms.

Answer 1

Answer: A = 9 and firm B = 0.11

Step-by-step explanation:

Debt to equity ratio = Total Liability/ total equity

Firm A = 18000000 / 2000000

Debt to equity ratio of firm A = 9

Firm B = 2000000 / 18000000

Debt to equity ratio of firm B = 0.11