Question

A firm has total debt of $1,370 and a debt-equity ratio of .22. What is the value of the total assets?

Answer 1

To find the value of the total assets, we can use the debt-equity ratio formula and the relationship between total debt, equity, and total assets.

The debt-equity ratio (D/E) is calculated as:

\[
\text{Debt-Equity Ratio} = \frac{\text{Total Debt}}{\text{Total Equity}}
\]

In this case, the total debt is $1,370 and the debt-equity ratio is 0.22.

Let's denote total equity as \( E \). We can now set up the equation based on the debt-equity ratio:

\[
0.22 = \frac{1370}{E}
\]

Now, we can solve for \( E \):

\[
E = \frac{1370}{0.22} = 6227.27 \text{ (approximately)}
\]

Now we can find total assets. The relationship between total assets, total debt, and total equity is:

\[
\text{Total Assets} = \text{Total Debt} + \text{Total Equity}
\]

Substituting the values we found:

\[
\text{Total Assets} = 1370 + 6227.27 \approx 7597.27
\]

Thus, the value of the total assets is approximately **$7,597.27**.