BProblemsChapter 9-1

BProblemsChapter 9-1 - Problem 9–1 a Debt/Equity Ratio...

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Unformatted text preview: 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..................................................................................................................... % . 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 a company makes in determining the “right” ratio (i....
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This note was uploaded on 12/07/2010 for the course ACCT 2030 taught by Professor Harris during the Spring '10 term at U. Memphis.

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