The liabilities and? owners\' equity for Campbell Industries is found? here:?. a
ID: 1170074 • Letter: T
Question
The liabilities and? owners' equity for Campbell Industries is found? here:?.
a.??What percentage of the? firm's assets does the firm finance using debt? (liabilities)?
b.??If Campbell were to purchase a new warehouse for $ 1.2 million and finance it entirely with? long-term debt, what would be the? firm's new debt? ratio?
a.??What percentage of the? firm's assets does the firm finance using debt? (liabilities)?
The fraction of the? firm's assets that the firm finances using debt is _____%. (Round to one decimal? place.)
Accounts payable $522,000
Notes payable $242,000
Current liabilities $764,000
Long-term debt $1,189,000
Common equity $5,367,000
Total liabilities and equity $7,320,000
Explanation / Answer
(a)Percentage of the firm's assets does the firm finance using debt (liabilities) = 26.7%
Percentage of the firm's assets does the firm finance using debt = Total liabilities / Total liabilities and equity
Total liabilities ;- The value of total liabilities are hidden in the question, We can determine the value of total liabilities by deducting the Common equity from the Total liabilities and equity
Total liabilities = Total liabilities and equity – Common Equity
= $7,320,000 - $5,367,000
= $1,953,000
Percentage of the firm's assets does the firm finance using debt
= [ $1,953,000 / $7,320,000 ] x 100
= 26.7%
“ The fraction of the firm's assets that the firm finances using debt is 26.7% “
(b) Firm's new debt ratio If the firm purchase a new warehouse for $ 1.2 million and finance it entirely with long-term debt = 37%
Revised Total Liabilities = $1,953,000 + $12,00,000 = $31,53,000
Revised Total liabilities and equity = $7,320,000 + $12,00,000 = $85,20,000
Firm's new debt ratio = Total liabilities / Total liabilities and equity
= [ $31,53,000 / $85,20,000 ] x 100
= 37%
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