Neal Enterprises has no debt. Its current total value is $77.6 million. Assume t

Question

Neal Enterprises has no debt. Its current total value is $77.6 million. Assume the company sells $35.8 million in debt. Requirement 1: Ignoring taxes, what is the debt-equity ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Debt-equity ratio ______ Requirement 2: Assume the company's tax rate is 32 percent. What is the debt-equity ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Debt-equity ratio______

Explanation / Answer

Debt = $35.8 million

Equity = $77.6 - $35.38 million = $41.8 million

Debt equity ratio = Debt / equity

= 35.8 / 41.8

= 0.86

2

Debt equity ratio = Debt / equity

= 28.64 / 41.8

= .68

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