BProblemsChapter 9-1

# BProblemsChapter 9-1 - Problem 91 a(1 Debt/Equity...

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Problem 9–1 a. Debt/Equity Ratio Debt/Capitalization Ratio (1) Including current liabilities ........................................................................................................................... % 7 . 66 880 , 146 \$ 920 , 97 \$ = Rarely calculated this way. (2) Excluding current liabilities except current portion of long-term debt .................................................................................................................. \$79,560 \$146,880 54.2% = % 1 . 35 440 , 226 \$ 560 , 79 \$ = (3) Excluding all current liabilities ..................................................................................................................... % 0 . 50 880 , 146 \$ 440 , 73 \$ = % 3 . 33 320 , 220 \$ 440 , 73 \$ = b. These two ratios measure the proportion of funds the company has raised from creditors as opposed to owners. They indicate how much “leverage” the firm has in its capital structure. The basic trade-off a company makes in determining the “right” ratio (i.e., capital structure) is between the risks inherent in taking on fixed debt obligations versus the opportunity to increase the shareholders’ profitability by having some debt in the capital structure. (A more detailed study of capital structure decisions is covered in finance courses.) Problem 9–2 a. Basic earnings per share = 83 . 7 \$ shares 2,000,000 ) \$3,900,000 00 (\$19,550,0 = - b. Diluted earnings per share = 45 . 7 \$ * ) 000 , 100 000 , 200 ( 000 , 000 , 2 ) 000 , 900 , 3 \$ 000 , 550 , 19 (\$ = - + - *Assume 200,000 optional shares issued less assumed 100,000 shared repurchased with option payments (200,000 shares x \$10 per exercised option) at \$20 per share. Problem 9–4
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