Question

# The balance sheet and income statement shown below are for Koski Inc. Note that the firm...

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

 Balance Sheet (Millions of \$) Assets 2016 Cash and securities \$2,145 Accounts receivable 8,970 Inventories 12,480 Total current assets \$23,595 Net plant and equipment \$15,405 Total assets \$39,000 Liabilities and Equity Accounts payable \$7,410 Accruals 4,290 Notes payable 5,460 Total current liabilities \$17,160 Long-term bonds \$7,800 Total liabilities \$24,960 Common stock \$5,460 Retained earnings 8,580 Total common equity \$14,040 Total liabilities and equity \$39,000 Income Statement (Millions of \$) 2016 Net sales \$58,500 Operating costs except depreciation 54,698 Depreciation 1,024 Earnings before interest and taxes (EBIT) \$2,779 Less interest 829 Earnings before taxes (EBT) \$1,950 Taxes 683 Net income \$1,268 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of \$) \$443.63 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price \$30.42

What is the firms total debt to total capital ratio? Do not round your intermediate calculations.

The correct answer is 48.0% SHOW WORK

#### Homework Answers

Answer #1

Total debt to total capital ratio refers to the ratio which depicts that what is the amount of debt that has been taken up by the company per unit of capital.

Formula for total debt to total capital ratio= Debt/(Shareholder's Equity+Debt)

Following is the computation of above said ratio as follows:

= Debt/(Shareholder's Equity+Debt)

= Notes Payable+Long-term bonds/(Shareholder's Equity+Debt)

= \$5460+\$7800/(Shareholder's Equity+\$5460+\$7800)

= \$5460+\$7800/(\$14040+\$5460+\$7800)

=\$13260/(\$27300)

=.4857 or 48.57%.

If you have any doubt about the solution then please revert back to me so that I can help you. All the best.

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