The current balance sheet of Apex reports total assets of $20 million, total lia

Question

The current balance sheet of Apex reports total assets of $20 million, total liabilities of $2 million, and owners' equity of $18 million. Apex is considering several financing possibilities in order to expand operations. Each question based on this data is independent of any others.What will be the effect on Apex's debt ratio if Apex's owner invests an additional $2 million to finance its expansion?

A) The debt ratio will decrease from .1 (2/20) to .0909 (2/22) after the additional investment.
B) The debt ratio will decrease from 2/9 before to 2/11 after the additional investment.
C) The debt ratio will increase from 20 before to 22 after the additional investment.
D) Additional investment by owner will have no effect on the debt ratio

Explanation / Answer

Choice A is correct. An additional investment of $2 million by owners will increase assets and stockholders equity. Liabilities are not affected. Therefore the debt ratio (L/A) will go from 2/20 to 2/22.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.