Question

Tiggie's Dog Toys, Inc., reported a debt-to-equity ratio of 1.25 times at the end of 2015. The firm's total assets at year-end were $28.26 million.

How much of their assets are financed with debt and how much with equity?

Answer 1

Debt to Equity = Total Debt / Total Equity

1.25 Times = Total Debt / ( Total Assets - Total Debt)

Let the Debt be $ x

or 1.25 = $ x / ( $ 28.26 Million - $x)

or 1.25 * ( $ 28.26 Million - $x) = $ x

or $ 35.325 Million - 1.25 x= $ x

or $ 35.325 Million = $ x + 1.25x

or $ 35.325 Million = 2.25 x

or x = $ 35.325 Million / 2.25

or $x = $ 15.70 Million

Hence, Assets financed by Debt = $ 15.70 Million

and Assets financed by Equity = $ 28.26 Million -$ 15.70 Million

= $ 12.56 Million

the correct answer is :

Debt = $ 15.70 Million

Equity = $ 12.56 Million