Question

Tiggie's Dog Toys, Inc. reported a debt-to-equity ratio of 2.00 times at the end of 2018. The firm's total assets at year-end were $22.50 million. How much of their assets are financed with debt and how much with equity

Answer 1

The amount of asset financed with debt is $15 million and amount of assets financed by equity is $7.5 million

Step-by-step explanation:

Debt/Equity=2 equation 1

Debt=2*equity

debt+equity=22.50 equation 2

Since debt is 2equity,substitute for debt in equation 2

2equity+equity=22.50

3equity=22.50

equity=22.50/3

equity =$7.5 million

since debt=2equity

debt=2*$7.5 million

debt=$15 million

The company could be said to be highly geared as debt financing is double of equity financing,in essence it is likely going to have volatile earnings as high amount interest is payable year-on-year