Question

Neal enterprises has no debt. its current total value is $45 million. assume the company sells $16 million in debt. requirement 1: ignoring taxes, what is the debt-equity ratio

Answer 1

Total value of company before issue of debt = 45 Million

Since there was no debt, all of this capital is equity capital.

Therefore, equity capital = 45 Million

Debt capital raised = 16 Million

The debt to equity ratio = total debt/total equity

Debt to equity ratio = 16/45 = 0.3556