SOLUTION: Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio?
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Question 394816: Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Answer by robertb(5830) (Show Source):
You can put this solution on YOUR website! Equity multiplier = Total assets/common stockholder equity = , where DC = debt capital.
Then
==> TA = 2.5(TA) - 2.5(DC)
==> 2.5(DC) = 1.5(TA)
==> = debt ratio.
