Calculate the Amount of Owner's Equity and the Two Leverage

question 114

Short Answer

Calculate the amount of owner's equity and the two leverage ratios: $$\begin{array} { l l l l l l } & \text { Total } & \text { Total } & \text { Owner's } & \text { Debt to } & \text { Debt to } \\& \text { Assets } & \text { Equity } \\\text { Company } & \text { Assets } & \text { Liabilities } & \text { Equity } & \text { Ratio } & \text { Ratio } \\\text { Philip Industries } & \$ 316,800 & \$ 110,600 & & &\end{array}$$

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Definitions:

Unlevered Cost

The cost of an investment that does not include the impact of borrowing; essentially the expense borne without considering the effect of leverage.

Targeted Cost

The desired or estimated cost of a product or project, set in order to achieve competitiveness and profitability objectives.

Debt-Equity Ratio

An indicator showing the relative mix of equity and debt financing employed by a company for its assets.

Pre-Tax Cost

The pre-tax cost of debt is the interest rate a company pays on its borrowings before taking into account the tax deductions that reduce the effective interest cost.