Question

Given the information in the table below, what is the long-term capital structure for this firm?

Revenues - $5,000,000
Net income - $500,000
Current assets - $1,800,000
Non-current assets - $2,450,000
Current liabilities - $450,000
Long-term debt - $200,000
Total assets - $4,250,000
Total shareholders equity - $3,600,000

(A) about 4.7% long-term debt and 95.3% equity
(B) about 5.3% long-term debt and 94.7% equity
(C) about 15.3% debt and 84.7% equity

Answer 1

The firm's long-term capital structure is approximately 5.3% long-term debt and 94.7% equity.

Step-by-step explanation:

To calculate the long-term capital structure for the firm, we need to determine the proportion of long-term debt and equity in the firm's total financing. The total long-term financing is the sum of long-term debt and total shareholders' equity, which is $200,000 + $3,600,000 = $3,800,000.

The long-term debt proportion is calculated as (long-term debt / total long-term financing) x 100 = ($200,000 / $3,800,000) x 100, which is approximately 5.26%. Conversely, the equity proportion is calculated as (total shareholders' equity / total long-term financing) x 100 = ($3,600,000 / $3,800,000) x 100, resulting in approximately 94.74%. Hence, the firm's long-term capital structure is approximately 5.3% long-term debt and 94.7% equity.

: The firm's long-term capital structure is about 5.3% long-term debt and 94.7% equity, which corresponds to option (B) in the question.