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5 June, 03:46

Brookman Inc's latest EPS was $2.75, its book value per share was $22.75, it had 275,000 shares outstanding, and its debt/total invested capital ratio was 44%. The firm finances using only debt and common equity, and its total assets equal total invested capital. How much debt was outstanding? Do not round your intermediate calculations. a. $5,013,938 b. $4,571,531 c. $5,358,031 d. $4,915,625 e. $4,768,156

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  1. 5 June, 05:42
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    Outstanding debt = $4,915,625

    Explanation:

    Since the debt capital ratio 44%, then the equity / capital ratio is 56% i. e (100% - 44%)

    The total value of stock = Book value per share * outstanding capital

    = $22.75 * 275,000 = $6,256,250.

    The total value of equity = 56% * total value of assets

    $6,256,250. = 56% * y

    6,256,250/56% = y

    11,171,875 = y

    Total value of assets = $11,171,875

    Debt outstanding = debt/capital ratio * Assets

    = 44% * $11,171,875

    = $4,915,625
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