Question

Brookman Inc's latest EPS was $2.75, its book value per share was $22.75, it had 275,000 shares outstanding, and its debt/total invested capital ratio was 44%. The firm finances using only debt and common equity, and its total assets equal total invested capital. How much debt was outstanding? Do not round your intermediate calculations. a. $5,013,938 b. $4,571,531 c. $5,358,031 d. $4,915,625 e. $4,768,156

Answer 1

Answer:

  Outstanding debt = $4,915,625

Explanation:

Since the debt capital ratio 44%, then the equity/ capital ratio is 56% i.e (100% -44%)

The total value of stock = Book value per share × outstanding capital

                              = $22.75 × 275,000 =  $6,256,250.

The total value of equity = 56% × total value of assets

             $6,256,250.       = 56% × y

                   6,256,250/56% = y

                   11,171,875  = y

Total value of assets = $11,171,875  

Debt outstanding = debt/capital ratio × Assets

                          =  44% × $11,171,875

                           = $4,915,625