Question

Kenny Rogers Roasters recently reported $400,000 in long-term debt, $408,000 in notes payable, and $1,952,352 in...

Kenny Rogers Roasters recently reported $400,000 in long-term debt, $408,000 in notes payable, and $1,952,352 in total common equity and $436,800 in Accounts Payable. What is the debt-to-capital ratio for Kenny Rogers Roasters? (Your answer should be in decimal numeric form and rounded to two decimals)

A.

0.29
B.

0.17
C.

0.20
D.

0.41
E.

None of the above
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Answer #1

long-term debt =  $400,000 notes payable = $408,000 accounts Payable =  $436,800

total common equity = $1,952,352

We know that formula for debt-to-capital ratio is :

Debt-to-Capital Ratio = Total Debt / Total Capital OR

Debt-to-Capital Ratio = Total Debt /(Total Shareholders’ Equity + Total Debt)

Total Debt = long-term debt + notes payable = $400,000 + $408,000 = $808,000

[ accounts payable is not considered as debt as only interest bearing debt are considerd]

Total Capital = Total Shareholders’ Equity + Total Debt = $1,952,352 + $808,000 = $2,760,352

Debt-to-Capital Ratio = $808,000 / $2,760,352 = 0.2927 = 0.29

Debt-to-capital ratio for Kenny Rogers Roasters is A. 0.29

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