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Scenario #1: XYZ Corporation Balance Sheet Assets $70,000,000 Debt-to-equity ratio 17% Scenario #2: Debt $10,000,000 Equity $60,000,000 Debt-to-capital ratio 14% XYZ Corporation Balance Sheet Assets $70,000,000 Debt Equity $20,000,000 $50,000,000 Debt-to-equity ratio 40% Scenario #3: Debt-to-capital ratio 29% XYZ Corporation Balance Sheet Assets $70,000,000 Debt Equity $30,000,000 $40,000,000 Debt-to-equity ratio 75% Debt-to-capital ratio 43%

Scenario #1: XYZ Corporation Balance Sheet Assets $70,000,000 Debt-to-equity ratio 17% Scenario #2: Debt $10,000,000 Equity $60,000,000 Debt-to-capital ratio 14% XYZ Corporation Balance Sheet Assets $70,000,000 Debt Equity $20,000,000 $50,000,000 Debt-to-equity ratio 40% Scenario #3: Debt-to-capital ratio 29% XYZ Corporation Balance Sheet Assets $70,000,000 Debt Equity $30,000,000 $40,000,000 Debt-to-equity ratio 75% Debt-to-capital ratio 43%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Refer to the attached to answer the questions below if you can please :)

 

Refer to your completed worksheet with corresponding financial ratios.

 

How can the CFO interpret these ratios?  Explain your reasoning.  Which financing scenario and resulting capital structure provides the greatest benefit to an organization’s shareholders?  Why?

Scenario #1: XYZ Corporation Balance Sheet Assets $70,000,000 Debt-to-equity ratio 17% Scenario #2: Debt $10,000,000 Equity $60,000,000 Debt-to-capital ratio 14% XYZ Corporation Balance Sheet Assets $70,000,000 Debt Equity $20,000,000 $50,000,000 Debt-to-equity ratio 40% Scenario #3: Debt-to-capital ratio 29% XYZ Corporation Balance Sheet Assets $70,000,000 Debt Equity $30,000,000 $40,000,000 Debt-to-equity ratio 75% Debt-to-capital ratio 43%
Transcribed Image Text:Scenario #1: XYZ Corporation Balance Sheet Assets $70,000,000 Debt-to-equity ratio 17% Scenario #2: Debt $10,000,000 Equity $60,000,000 Debt-to-capital ratio 14% XYZ Corporation Balance Sheet Assets $70,000,000 Debt Equity $20,000,000 $50,000,000 Debt-to-equity ratio 40% Scenario #3: Debt-to-capital ratio 29% XYZ Corporation Balance Sheet Assets $70,000,000 Debt Equity $30,000,000 $40,000,000 Debt-to-equity ratio 75% Debt-to-capital ratio 43%
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