a farm business has an equity - to - asset ratio of 0.25. its debt - to equity ratio is: 1 point 0.25 0.75…
a farm business has an equity - to - asset ratio of 0.25. its debt - to equity ratio is: 1 point 0.25 0.75 1.5 3.0 skip for now submit answer
Answer
Explanation:
Step1: Recall accounting - asset formula
Assets = Debt + Equity
Step2: Express equity - to - asset ratio
Given $\frac{Equity}{Assets}=0.25$, let Equity = $0.25x$ and Assets = $x$.
Step3: Calculate debt
Since Assets = Debt + Equity, then Debt = Assets - Equity. Substituting values, Debt = $x - 0.25x=0.75x$.
Step4: Calculate debt - to - equity ratio
$\frac{Debt}{Equity}=\frac{0.75x}{0.25x}=3$
Answer:
3.0