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A firm has a long-term debt–equity ratio of .4. Shareholders’ equity is $1 million. Current assets...

A firm has a long-term debt–equity ratio of .4. Shareholders’ equity is $1 million. Current assets are $200,000, and total assets are $1.5 million. If the current ratio is 2.0, what is the ratio of debt to total long-term capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Debt to long-term capital ____ % 28.6% and 28.57% is not a correct answer

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Expert Solution

Step-1:Calculate Long term debt
Long term debt -Equity Ratio = Long term debt /Shareholder's Equity  
            0.4 = Long term debt /1000000
Long term debt =      4,00,000
Step-2:Calculate current Liabilities
Current Ratio = Current Assets/Current Liabilities
            2.0 = 200000/Current Liabilties
Current Liabiliies = $   1,00,000
Step-3:Caluculate total debt
Total Debt = Long term debt + Current Liabiliies
= $   4,00,000 + $   1,00,000
= $   5,00,000
Step-4:Calculate Long term Capital
Long term Capital = Long term debt+Shareholder's Equity
= $   4,00,000 + $ 10,00,000
= $ 14,00,000
Step-5:Calculate debt to Long term capital
Debt to Long term Capital = Total Debt/Long term Capital
= $ 5,00,000 / $ 14,00,000
= 35.71%
Thus, Debt to long-term capital   35.71%

jeff jeffy answered 1 year ago
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