Question 8If a company has $30,000 debt and $60,000 equity, what is its debt to equity ratio?

1. Break Down the Problem

To find the debt to equity ratio, we need to divide the total debt by the total equity.

2. Relevant Concepts

The formula for the debt to equity ratio (D/E) is given by:

$\text{Debt to Equity Ratio} = \frac{\text{Total Debt}}{\text{Total Equity}}$

3. Analysis and Detail

• Total Debt = $30,000
• Total Equity = $60,000

Now, we will substitute these values into the formula.

$\text{Debt to Equity Ratio} = \frac{30,000}{60,000}$

4. Verify and Summarize

Calculating the above expression, we can simplify:

$\frac{30,000}{60,000} = \frac{1}{2} = 0.5$

Final Answer

The debt to equity ratio is 0.5.