Question

Brookman Inc.’s latest EPS was $2.75, its book value per share was $22.75, it had 315,000 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?

a) $4,586,179 b) $4,827,557 c) $5,081,639 d) $5,349,094 e) $5,630,625

Answer 1

Option (E) is correct.

Step-by-step explanation:

EPS = $2.75

Book Value Per Share = $22.75

Shares Outstanding = 315,000

Debt Ratio = 44%

Total equity = Shares outstanding × Book Value Per Share

= 315,000 × $22.75

= $7,166,250

Total assets = Total equity ÷ (1 - Debt Ratio)

= $7,166,250 ÷ (1 - 0.44)

= $12,796,875

Total Dept = Total assets - Equity

= $12,796,875 - $7,166,250

= $5,630,625