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Joe owns and operates Socccer Stores of America. He has $375000 of his own money in...

Joe owns and operates Socccer Stores of America. He has $375000 of his own money in the business as equity capital, but because of the use of debt, the total value of his stores is $900000. Calculate the percentage of debt in the corporation, and the corporation's leverage factor.
Percentage of debt in the corporation= %

Place your answer in percentage form with two decimal places.

The corporation's leverage factor=

Place your answer as a number with two decimal places.

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Homework Answers

Answer #1

Joe has Own Money in business = 375000

Total Value of the store = 900000

So, we know that Total value of store = Debt + Equity

So, Debt = Total Value - equity

= 900000-375000

= 525000

So, Debt in the Corporation = Debt / Total Value

=525000/900000

= 0.58333

which is 58.333% of Debt in the corporation

Corporation Leverage Factor = Total Debt / Total Equity

Debt =525000

Equity = 375000

So, Leverage Factor will be = 525000/375000

Leverage Factor = 1.4

The Leverage factor shows that how much company is finance From debt portion, The good leverage ratio is less than 0.5, anything above that shows company is finance by more of debt portion rather than equity.

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