Question

Company X purchased Company Y using financing as follows: $18 million from mortgages, $3 million from retained earnings, $13 million from cash on hand, and $35 million from bonds. Determine the debt-to-equity mix.

Answer 1

The debt to equity mix = 74.65% - 25.35%

Step-by-step explanation:

The computation of the debt to equity mix is shown below:

Debt is

= Mortgages + Bond

= $18 + $35

= $53 million

And, the Equity is

= Retained earnings + Cash in hand

= $5 + $13

= $18 million

Now

Percentage of debt financing

= $53 ÷ ($53 + $18)

= 74.65%

And, percentage of equity financing is

= $18 ÷ ($53 + $18)

= 25.35%

And, finally

The debt to equity mix = 74.65% - 25.35%