Caillou Guiliano Incorporated recently reported the following information: (Sales )/(Total Assets) : 2.25 Return on Assets...

Caillou Guiliano Incorporated recently reported the following information:
(Sales )/(Total Assets) : 2.25 Return on Assets (ROA) : 4.5% Return on Equity (ROE) : 7.5%
Assuming the firm uses only debt and common equity, so total assets equal total invested capital.
Answer the following questions: What is Caillou Gulliano's debt-to-capital ratio?
a) 20% b) 50% c) 40% d) 35% e) 25%

Expert Solution

ROA=net income/Total assets

net income=0.045*Total assets

ROE=net income/equity

net income=0.075*equity

Total assets=Total liabilities+Total equity

Debt=(net income/0.045)-(net income/0.075)

=8.8889*Net income

Debt to capital ratio=debt/Total capital

(8.8889*Net income)/(Net income/0.045)

=40%

jeff jeffy answered 2 years ago

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