Final answer:
The debt to equity ratio for Company A is 1.11, and for Company B, it is 0.73. Bonds and bank loans are both financing methods, but they differ in marketability, maturity, and control. Eva's initial equity in her home is $20,000 after making a 10% down payment on a $200,000 home.
Step-by-step explanation:
Debt to Equity Ratio Calculation
To calculate the debt to equity ratio, we use the formula: Debt to Equity Ratio = Total Liabilities / Total Stockholders' Equity. For Company A, the total liabilities are $21,484 million and the total stockholders' equity is $19,393 million, resulting in a debt to equity ratio of 21,484 / 19,393 = 1.11. For Company B, total liabilities are $13,936 million and total stockholders' equity is $19,069 million, yielding a debt to equity ratio of 13,936 / 19,069 = 0.73. These ratios can help assess the financial leverage and risk of the companies.
Comparison of Bonds and Bank Loans
From a firm's point of view, both bonds and bank loans are methods of raising capital. A bond is similar to a bank loan in that both involve borrowing money that must be repaid with interest. However, they differ in that bonds are traded on the open market, often have longer maturities, and do not typically grant the bondholders control over business decisions. Bank loans, on the other hand, are not traded publicly and might come with more restrictive covenants that can influence a company's operations.
Calculating Home Equity
To calculate home equity, you subtract the amount owed on a mortgage from the value of the home. For instance, Eva made a 10% down payment on a $200,000 home, which is $20,000. She borrowed the remaining $180,000. Therefore, Eva's initial equity in the home is $20,000.