Unformatted text preview: interest cost that is 8% of total debt. Total Assets Total Liabilities Net Income A $ 10,000,000 $ 1,000,000 $ 200,000 B 20,000,000 3,000,000 1,000,000 C 6,000,000 4,000,000 250,000 D 15,000,000 6,000,000 1,600,000 E 30,000,000 22,000,000 4,000,000 (a) Calculate the debt to total asset ratio, and reorder the list from least risky to most risky, based upon that ratio. (b) Calculate the debt to equity ratio, and reorder the list from least risky to most risky, based upon that ratio. (c) Calculate the times interest earned ratio, and reorder the list from least risky to most risky, based upon that ratio. (d) Do the ratios suggest that risk is a function of total debt, or other factors? Do all the ratios produce the same signals?...
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This note was uploaded on 02/29/2012 for the course ACCOUNTING 101 taught by Professor Hudack during the Spring '11 term at FIU.
 Spring '11
 hudack
 Accounting

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