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Assume the following data: Long-term bonds = $100; Book value of long-term leases = $20; Book...

Question:

Assume the following data: Long-term bonds = $100; Book value of long-term leases = $20; Book value of equity = $80; Market value of equity = $100.

Calculate the debt-equity ratio.

Capital Structure:

Capital structure refers to the composition of debts versus equities in financing a firm's assets. A commonly used indicator of a firm's capital structure is the debt-equity ratio, which is computed as the ratio of the value of a firm's debt to the value of its equities.

Answer and Explanation:

Based on book value, the debt-equity ratio is 1.5.

The debt-equity ratio is calculated as the value of debt divided by the value of equity.

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Debt Capital Vs Equity Capital

from Business 100: Intro to Business

Chapter 23 / Lesson 2
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