Question

Meyer inc's total invested capital is $660,000, and its total debt outstanding is $185,000. the new cfo wants to establish a total debt to total capital ratio of 55%. the size of the firm will not change. how much debt must the company add or subtract to achieve the target debt to capital ratio?

a. $217,160
b. $178,000
c. $176,220
d. $172,660
e. $138,840

Answer 1

The correct answer is B, $178,000. Meyer's current debt to capital ratio is 28 percent. This figure is arrived at by dividing total debt outstanding by total invested capital. In order to achieve the target debt to capital ratio of 55%, Meyer must add $178,000 of debt so that his total debt comes to $363,000.