If a company has a debt-to-equity ratio of 2:1 and total equity of $300,000, wha

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Question: If a company has a debt-to-equity ratio of 2:1 and total equity of $300,000, what is the total debt?

Options:

Correct Answer: $600,000

Solution:

Debt-to-Equity Ratio = Debt/Equity = 2/1. Total Debt = 2 * Total Equity = 2 * 300,000 = $600,000.

If a company has a debt-to-equity ratio of 2:1 and total equity of $300,000, what is the total debt?

If a company has a debt-to-equity ratio of 2:1 and total equity of $300,000, what is the total debt?

Step 1: Understand the debt-to-equity ratio. It means for every 2 parts of debt, there is 1 part of equity.
Step 2: Identify the total equity amount given in the question, which is $300,000.
Step 3: Use the debt-to-equity ratio to find the total debt. The ratio is 2:1, meaning total debt is 2 times the total equity.
Step 4: Calculate the total debt by multiplying the total equity by 2. So, Total Debt = 2 * $300,000.
Step 5: Perform the multiplication: 2 * 300,000 = $600,000.
Step 6: Conclude that the total debt is $600,000.

Debt-to-Equity Ratio – A financial ratio indicating the relative proportion of a company's debt to its shareholders' equity.
Total Debt Calculation – Understanding how to derive total debt from the debt-to-equity ratio and total equity.