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question 149

Multiple Choice

[The following information applies to the questions displayed below.]
The current balance sheet of Apex reports total assets of $20 million,total liabilities of $2 million,and owners' equity of $18 million.Apex is considering several financing possibilities in order to expand operations.Each question based on this data is independent of any others.
-What will be the effect on Apex's debt ratio if Apex's owner invests an additional $2 million to finance its expansion?

• A)The debt ratio will decrease from 0.1 (2 ÷ 20)to 0.0909 (2 ÷ 22)after the additional investment.
• B)The debt ratio will decrease from 2 ÷ 9 before to 2 ÷ 11 after the additional investment.
• C)The debt ratio will increase from 20 before to 22 after the additional investment.
• D)Additional investment by owner will have no effect on the debt ratio.

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Definitions:

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