Question

Last year, Arbor Corporation reported the following: Balance Sheet Total Assets $ 1,040,000 Total Liabilities 660,000 Total Shareholders' Equity $ 380,000 This year, Arbor is considering whether to issue more debt to fund a $100,000 project or to issue additional shares of common stock. Both options will bring in exactly $100,000. Arbor's current debt contracts contain a debt covenant that requires it to maintain a debt-to-equity ratio of 2.00 or less. Required: 1. Calculate Arbor's current debt-to-equity ratio. (Round your answer to 2 decimal places.)

Answer 1

Arbor's current debt-to-equity ratio = 1.74

Step-by-step explanation:

Given:

Total assets : $1,0400,000

Total liabilities : $660,000

Total Shareholders' Equity: $380,000

To calculate the current debt to equity ratio.

It is calculated as:

Total liabilities / Total Shareholders equity.

Therefore, the current debt to equity ratio will be :

$660,000/$380,000 = 1.74

Therefore, Arbor's current debt-to-equity ratio = 1.74