You Are Considering a Stock Investment in One of Two

question 87

Multiple Choice

You are considering a stock investment in one of two firms (A and B) , both of which operate in the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity. Calculate the debt-to-equity ratio for the two firms.

• A) Firm A: 9 times; Firm B: 1.11 times
• B) Firm A: 19 times; Firm B: 0.11 times
• C) Firm A: 9 times; Firm B: 0.11 times
• D) Firm A: 19 times; Firm B: 1.11 times

---

Definitions:

Income Beneficiary

An individual or entity entitled to receive income generated from a trust, estate, or account, rather than the principal sum itself.

Trust

A fiduciary arrangement where a trustee holds assets on behalf of beneficiaries, often used for estate planning and asset protection.

Dividend Income

Income earned from owning shares of a company, typically paid out from the company's profits to shareholders at regular intervals.

Investment Guidelines

A set of principles or rules designed to guide the management of investments, ensuring they meet specific objectives and constraints.