SOLUTION: If a firms debt-to-equity ratio is 2.6 , what is its total debt to total asset ratio? Show your answer to the nearest .1%. If your answer is 45.6%, enter your answer as 45.6 rather

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Question 1071543: If a firms debt-to-equity ratio is 2.6 , what is its total debt to total asset ratio? Show your answer to the nearest .1%. If your answer is 45.6%, enter your answer as 45.6 rather than 45.6% or .456.
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
the debt to equity ratio is 2.6

let D = debt.
let E = equity
let T = D + E

D/E = 2.6

solve for D to get D = 2.6 * E

D / (D + E) becomes (2.6 * E) / (2.6 * E + E)

simplify to get:

D / (D + E) = (2.6 * E) / (3.6 * E).

simplify further to get:

D / (D + E) = 2.6 / 3.6.

simplify further to get:

D / (D + E) = .722 = 72.2%.

this assumes that total assets are equal to debt + equity, which is believe is correct.

a simpler way to calculate it would be:

D/E = 2.6 is equivalent to D/E = 2.6 / 1

this makes D = 2.6 and E = 1.

D / (D + E) therefore becomes 2.6 / (2.6 + 1) = 2.6 / 3.6.

same result derived somewhat less painfully.