If the company's Debt-to-Equity ratio is 10:1 and it has a $10,000,000 worth of Equity Capital, how much Debt does the company have?

Question

BlackTom AI · Accepted Answer

A Debt-to-Equity ratio of 10:1 means total debt equals ten times the equity amount.

1. Relevant knowledge points and concepts
- Debt-to-Equity (D/E) ratio expresses the proportion of company financing that comes from debt versus shareholders’ equity.
- A ratio written as 10:1 (or 10/1) means Debt / Equity = 10.

2. Complete reasoning process step by step
- Start from the definition: Debt / Equity = 10.
- Rearranged to solve for Debt: Debt = 10 × Equity.

3. Calculations with intermediate steps
- Given Equity = $10,000,000.
- Debt = 10 × $10,000,000
- Debt = $100,000,000.

(If useful, total capitalization = Debt + Equity = $100,000,000 + $10,000,000 = $110,000,000.)

4. Why the correct answer is correct
- Because the ratio specifies that for each $1 of equity there are $10 of debt. Multiplying the known equity by 10 directly yields the debt value: $10M × 10 = $100M.

5. Why the other options are incorrect
- $10,000,000: This would correspond to a D/E of 1:1 (Debt equals Equity), not 10:1.
- $90,000,000: That would imply Debt / Equity = $90M / $10M = 9:1, not 10:1.
- $1,000,000: That implies Debt / Equity = 0.1:1 (or 1:10), the inverse of the stated ratio.

6. Conclusion confirming the provided answer
- Therefore the company has $100,000,000 of debt, which matches the provided correct answer: $100,000,000.

If the company's Debt-to-Equity ratio is 10:1 and it has a $10,000,000 worth of Equity Capital, how much Debt does the company have?单项选择题

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