Question

You are considering a stock investment in one of two firms (Lots of Debt, Inc. and LotsofEquity, Inc.), both of which operate in the same industry. LotsofDebt, Inc. finances its $33.00 million in assets with $31.75 million in debt and $1.25 million in equity. LotsofEquity, Inc.finances its $33.00 million in assets with $1.25 million in debt and $31.75 million in equity. Calculate the debt ratio. (Round your answers to 2 decimal places.); Debt ratio; LotsofDebt; Lots of Equity; Calculate the equity multiplier. (Round your answer to 2 decimal places.) ; Equity multiplier LotsofDebt; LotsofEquity; Calculate the debt-to-equity. (Round your answers to 2 decimal places.); Debt-to-equity; LotsofDebt; Lotsof Equity

Answer 1

	lots of debt			lots of equity
debt	31.75		debt	1.25
equity	1.25		equity	31.75
total assets	33		total assets	33
debt ratio = total liabilities/total assets = 31.75/33	96.21%		debt ratio = total liabilities/total assets = 1.25/33	3.79%
equity multiplier = total assets/total equity = 33/1.25	26.40		equity multiplier = total assets/total equity = 33/31.75	1.04
debt equity ratio = total of liabilities/total equity = (31.75/1.25)*100	25.4		debt equity ratio = total of liabilities/total equity =(1.25/31.75)*100	.039