Question

Brookman Inc's latest EPS was $2.75, its book value per share was $22.75, it had 325,000 shares outstanding, and its debt/total invested capital ratio was 44%. The firm finances using only debt and common equity and its total assets equal total invested capital. How much debt was outstanding? Do not round your intermediate calculations.

Answer 1

Answer: $5,809,375

Step-by-step explanation:

The outstanding debt will be calculated thus:

Firstly, we'll calculate the total equity which will be:

= Shares outstanding × Book value per share

= 325000 × $22.75

= $7,393,750

Total assets = Total equity/(1 - Debt ratio) = $7,393,750/(1 - 44%)

= $13,203,125

Total Debt will now be:

= Total assets - Total equity

= $13,203,125 - $7,393,750

= $5,809,375

Therefore, Outstanding debt is $5,809,375.