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You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in the same industry. LotsofDebt, Inc. finances its $34.25 million in assets with $32.25 million in debt and $2.00 million in equity. LotsofEquity, Inc. finances its $34.25 million in assets with $2.00 million in debt and $32.25 million in equity. Calculate the debt ratio. (Round your answers to 2 decimal places.) Calculate the equity multiplier. (Round your answers to 2 decimal places.)

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Ritmeks

Answer:

Debt ratio

94.16%

5.84%

Equity multiplier

17.13%

1.06%

Explanation:

The debt ratio can be calculated as follows

Lots of debt incorporation= total liability/total assets.

= 32.25/34.25

= 0.9416×100

= 94.16%

Lots of equity incorporation= 2.00/34.25

= 0.05839 × 100

= 5.84%

The eqiuty multiplier can be calculated as follows

Lots of debt incorporation= equity/multiplier

= 34.25/2.00

= 17.13%

Lots of equity incorporation= equity/multiplier

= 34.25/32.25

= 1.06%

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