Question 1

You are considering two identical firms, one levered (has debt) and the other not. The ratio of market debt to market equity is 1.5 for the levered firm. What proportion of the levered firm is financed with debt? How much of the unlevered firm is financed with debt?Here is some information about Company XYZ: Short-Term Debt $5,000,000 Long-Term Debt $10,000,000 Total Debt $15,000,000 Common Equity $500,000 Preferred Equity $250,000 Additional Paid In Capital $6,000,000 Retained Earnings $3,250,000 Total Shareholders' Equity $10,000,000 Using the debt-to-equity formula and the information above, calculate that Company XYZ's debt-to-equity ratio