Question

Samantha Knight is applying for a small-business loan. She provided the bank with the following information:...

Samantha Knight is applying for a small-business loan. She provided the bank with the following information: cash in checking accounts: $5,000; cash in savings: $10,350; home market value: $145,500; first mortgage on house: $25,000; home equity loan limit: $70,000; home equity loan: $10,000; automobile market value: $19,000; automobile loan outstanding: $15,000; and credit card debt: $1,500.

Calculate the debt-to-asset ratio.
Calculate the debt-to-equity ratio.
Please provide the formula for each ratio in addition to your answers.
Business   Accounting   
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Homework Answers

Answer #1

Assets = cash in checking accounts +cash in savings + home market value+ automobile market value

=> 5000+10350+145500+19000 =179850

Liabilities = first mortgage on loan + home equity loan+ auto mobile loan outstanding + credit card debt

25000+10000+15000+1500 =51500

Share holders equity = Assets - outsideliabilities

= 179850 - 51500

= 128350

debt-to-asset ratio = ( short term debt+ long term debt)/ Total Assets

= 51500/179850

= 0.29

debt-to-equity ratio = total liabilities / share holders eauity

= 51500/128350

= 0.40

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