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

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Definitions:

Volcanic Ash

Fine particles of pulverized rock ejected from a volcano during an eruption, can cause damage to aircraft and affect climate.

Welded Igneous Texture

Characteristic of volcanic rock that forms when hot volcanic ash and debris fuse together under high temperature and pressure.

Magma

Molten rock beneath the Earth's surface, which can cool and solidify to form igneous rocks.

Pyroclastic Eruption

A volcanic eruption where hot fragments and magma are thrown into the air; also refers to a deposit or rock produced by such an event.