Final answer:
The debt ratio for Stub Laundry is calculated by subtracting equity from assets to find liabilities, then dividing liabilities by assets. This calculation results in a debt ratio of approximately 26%, which corresponds to option C.
Step-by-step explanation:
The question at hand is asking to calculate Stub Laundry's debt ratio, which is a financial metric used to understand the proportion of a company's assets that are financed by debt. The debt ratio is given by the formula Debt Ratio = Total Liabilities / Total Assets.
If we have Stub's reported assets of $850 and equity of $630, we need to find the liabilities to calculate the ratio. Since equity is part of the assets (Assets = Liabilities + Equity), then we can find the liabilities by subtracting equity from the assets, which gives us Liabilities = Assets - Equity = $850 - $630 = $220.
The debt ratio is calculated as follows: Debt Ratio = Liabilities / Assets = $220 / $850 = 0.2588, which is approximately 25.88%. However, as we look for a percentage closest to the provided options, we would round this to 26%, which corresponds to option C.