Question

# Accounts payable \$543,000 Notes Payable \$247,000 current liabilities \$790,000 Long term debt \$1,238,000 common equity \$5,141,000...

Accounts payable \$543,000

Notes Payable \$247,000

current liabilities \$790,000

Long term debt \$1,238,000

common equity \$5,141,000

Total liabilities and equity \$7,169,000

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 \$1.1 million and finance it entirely with​ long-term debt, what would be the​ firm's new debt​ ratio?

A)

Total Liabilities = Current Liabilities + Long Term Debt

= \$790,000 + \$1,238,000

= \$2,028,000

Total Assets = Total Liabilities + Total Equity

= \$2,028,000 + \$5,141,000

= \$7,169,000

Debt to Asset Ratio = Total Liabilities / Total Assets

= \$2,028,000 / \$7,169,000

= 0.2829 or 28.29%

B)

If Campbell purchased a new warehouse for \$1.1 million, both Long Term Debt and Total Liabilities will increase by \$1.1 million

Total Liabilities = Current Liabilities + Long Term Debt

= \$790,000 + (\$1,238,000 + \$1,100,000)

= \$3,128,000

Total Assets = Total Liabilities + Total Equity

= \$3,128,000 + \$5,141,000

= \$8,269,000

(Total Assets will increase as the company purchases warehouse which adds to the balance of Total Assets)

Debt to Asset Ratio = Total Liabilities / Total Assets

= \$3,128,000 / \$8,269,000

= 0.3783 or 37.83%