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A company has a return on equity of 20.65% and return on asset of 15%. What must be the company's debt-to-equity ratio?

A. 1.67
B. 0.76
C. 1.76
D. 0.67

User Darcamo
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1 Answer

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Final answer:

The company's debt-to-equity ratio can be calculated by dividing its total debt by its equity. In this case, the debt-to-equity ratio is 9.

Step-by-step explanation:

To calculate the debt-to-equity ratio, we need to know the total equity of the company, which is the difference between its assets and liabilities. In this case, the company's assets consist of reserves, bonds, and loans totaling $130 million ($30 million + $50 million + $50 million). The liabilities consist of deposits totaling $300 million, and the equity is $30 million. Therefore, the debt is $300 million - $30 million = $270 million.

The debt-to-equity ratio is calculated by dividing the debt by the equity. So, in this case, the debt-to-equity ratio is $270 million / $30 million = 9. Therefore, none of the options (A. 1.67, B. 0.76, C. 1.76, D. 0.67) are correct.

User Umar
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