2. 10.00 points Three Piggies Enterprises has no debt. Its current total value i

Question

2. 10.00 points Three Piggies Enterprises has no debt. Its current total value is $72.4 million. Assume the company sells $33.2 million in debt ignoring taxes, what is the debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Debl-equity ratio Assume the company's tax rate is 30 percent What is the debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Debt-equity ratio eBook & Resources Worksheet Learning Objective: 13-01 Discuss the eftect of financial leverage Difficulty: 2 Intermediate Section: 13.3 Capital Structure and the Cost of Equity Capital

Explanation / Answer

Debt to equity ratio = 33.20 / 72.40 = 0.46

Debt to equity ratio after tax

= Debt to equity ratio before tax * (1 - tax rate)

= 0.46 * (1 -0.30) = 0.32

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