Southern Corp. has a debt-to-equity ratio of 1.75 and total assets of $275 million. Southern is considering issuing another $20 million of debt and another $20 million of equity. What will be Southern's debt-to-equity ratio after the issuance?

1.625

Explanation:

Debt to equity ratio = Debt : Equity

or

1.75 = Debt : Equity

or

Debt = 1.75 * Equity

also,

Total assets = Debt + Equity

or

$275 million = 1.75 * Equity + Equity

or

$275 million = 2.75 * Equity

or

Equity = $100 million

Therefore,

Debt = $275 million - Equity

= $275 million - $100 million

= $175 million

Now,

after issuance,

Total debt = $175 million + $20 million

= $195 million

and,

Equity = $100 million + $20 million

= $120 million

Therefore,

Southern's debt-to-equity ratio after the issuance

= $195 million : $120 million

= 1.625