Using the Debt to Equity Ratio,which of the Following Franchises

question 52

Multiple Choice

Using the debt to equity ratio,which of the following franchises would be assessed as having the riskiest financing structure?
$$\begin{array} { | l | c | c | c | c | c | } \hline & \text { Franchise } & \text { Franchise } & \text { Franchise } & \text { Franchise } & \text { Franchise } \\& \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Total liabilities } & \$ 240,000 & \$ 120,000 & \$ 300,000 & \$ 500,000 & \$ 270,000 \\\hline \text { Total equity } & \$ 60,000 & \$ 20,000 & \$ 150,000 & \$ 100,000 & \$ 9 0 , 0 0 0 \\\hline\end{array}$$

• A) Franchise A
• B) Franchise B
• C) Franchise C
• D) Franchise D
• E) Franchise E

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Definitions:

Net Income

The amount of profit left after all operating expenses, taxes, and other costs have been subtracted from total revenue.

Structured Entity

A financial entity designed to segregate certain risks, assets, or activities, often used in complex financial structures to achieve specific objectives.

Joint Venture

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task or project.

Associated Company

A firm in which another company owns a significant stake but not a controlling interest, usually between 20% and 50% of the voting shares.