1. (Related to Checkpoint 4.2 on page 86) (Capital structure analysis) The liabi
ID: 2650313 • Letter: 1
Question
1. (Related to Checkpoint 4.2 on page 86) (Capital structure analysis) The liabilities and owners’ equity for Campbell Industries is found below:
Accounts payable $ 453,000
Notes payable 248,000
Current liabilities $ 701,000
Long-term debt $1,213,000
Common equity $5,477,000
Total liabilities and equity $7,391,000
What percentage of the firm’s assets does the firm finance using debt (liabilities)? (round to one decimal place)
If Campbell was to purchase a new warehouse for $1.5 million and finance it entirely with long term debt, what would be the firm’s new debt ratio?
The fraction of the firm’s assets that the firm finances using debt is ___% (Round to one decimal place).
Explanation / Answer
Accounts payable 453,000.00 Notes Payable 248,000.00 Long term debt 1,213,000.00 Total Debt 1,914,000.00 Common Equity 5,477,000.00 Total Assets = Debt + Equity 7,391,000.00 Debt firm uses to finance= 1,914,000/7,391,000 Debt firm uses to finance= 25.90% Old Debt 1,914,000.00 New Debt 1,500,000.00 Total Debt 3,414,000.00 Total Assets 7,391,000.00 New Assets 1,500,000.00 Total Assets 8,891,000.00 Debt ratio= Debt/Assets 0.38 Debt firm uses to finance= 3,414,000/8,891,000 Debt firm uses to finance= 38.40%
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