Starbucks: Debt Ratio and Debt-to-Equity Ratio

8. If a company has $181,000 in total liabilities and $225,000 in total assets, what percentage of total assets is being financed with the use of other people’s money? 80.4 (http://www.cliffsnotes.com/study_guide/Ratio-Analysis.topicArticleId-21248,articleId-21213.html)

* We already know the new is the interest rate of debt (5.5%). We use the average industry level (40.1%) as ATC’s D/E ratio like discussed in case page 7. By, we can get the new (9.46%).

| |finance the balance. How much will each monthly loan payment be if they can borrow the necessary funds for 30 years at 9% per |

Madeline Rollins is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Madeline is living at home and works in a shoe store, earning a gross income of $920 per month. Her employer deducts a total of $150 for taxes from her monthly pay. Madeline also pays $105 on several credit card debts each month. The loan she needs for physical therapy school will cost an additional $150 per month. Help Madeline make her decision by calculating her debt payments-to-income ratio with and without the college loan. (Remember the 20 percent rule.) (LO 5.3)

We calculated the proportions of debt and equity for the project based on the market value of the debt and equity held by Southwest Airlines in spring 2002. Total

The debt/equity ratio for Boeing is provided in exhibit 10, 0.525, from where we can infer the weights of both debt and equity.

This debt ratio is concerning and hints that the brewery may have difficulty paying its

However, as discussed before, According to the Key Industrial Financial Ratio U.S. Industrial Long-Term Debt table, a company whose ratio is ranked as A has the long-term debt/capital ratio and Total debt/Capitalization of 33.9% and 42.5% respectively. Thus, 40% of the debt ratio was used for valuation model for Target

Thus the WAVG Cost of Debt (including L/T debt and preferred stock) = rd = 8.633%

Market value proportions of: Debt = $1,147,200 / $4,897,200 = 23.4% Pref. Share = $1,250,000 / $4,897,200 = 25.5% Common equity = $2,500,000 / $4,897,200 = 51.1%

The decrease shows a prudent position particularly in when the world is undergoing economic recession; Rio Tinto Ltd reduced its reliance on debt to finance its assets. This also explained the 22% increase in current portion of long term debt, i.e. the company retired major portion of its debt holdings in the last year.

The Debt-Equity Ratio shows that most of the capital was in terms of ordinary shares and is becoming more reliant on Shareholders Equity than on debt to finance operations.

The cost of debt (kd) rate of 13% was used after we assessed the key industrial financial ratios and compared them with that of Wrigley’s (See Appendix 2) to conclude that it was in the range between the BB rate of

Using the tax rate of 35% plus state taxes of 3%, cost of debt becomes 4.3%*(1-0.38) = 0.266 = 2.7%

Using the same market risk premium and risk free rate (5.5% & 4.62% respectively) given in the case, the averaged beta of 1.40, the pretax cost of debt of 7.65%, and the weighted average of debt & equity, the products & systems