Questions: MyFinanceLab Assignment Part 1 of 2 Points: 0 of 4 (Related to Checkpoint 4.2) (Analyzing capital structure) The liabilities and stockholders' equity for Campbell Industries is found here: a. What percentage of the firm's assets does the firm finance using debt (liabilities)? b. If Campbell were to purchase a new warehouse for 1.1 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? a. What percentage of the firm's assets does the firm finance using debt (liabilities)? The fraction of the firm's assets that the firm finances using debt is % (Round to one decimal place)

Solution Steps

To solve the given questions, we need to follow these steps:

1. Calculate the percentage of the firm's assets financed using debt:

   • Use the formula: \(\text{Debt Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}} \times 100\)

2. Calculate the new debt ratio after purchasing a new warehouse:

   • Update the total liabilities by adding the cost of the new warehouse.
   • Update the total assets by adding the cost of the new warehouse.
   • Recalculate the debt ratio using the updated values.

To find the percentage of the firm's assets financed using debt, we use the formula: \[ \text{Debt Ratio} = \left( \frac{\text{Total Liabilities}}{\text{Total Assets}} \right) \times 100 \] Given: \[ \text{Total Liabilities} = \$3,500,000 \] \[ \text{Total Assets} = \$5,000,000 \] Substituting the values: \[ \text{Debt Ratio} = \left( \frac{3,500,000}{5,000,000} \right) \times 100 = 70.0\% \]

If Campbell were to purchase a new warehouse for \$1,100,000 and finance it entirely with long-term debt, we need to update the total liabilities and total assets.

New total liabilities: \[ \text{New Total Liabilities} = \text{Total Liabilities} + \text{New Warehouse Cost} = 3,500,000 + 1,100,000 = 4,600,000 \]

New total assets: \[ \text{New Total Assets} = \text{Total Assets} + \text{New Warehouse Cost} = 5,000,000 + 1,100,000 = 6,100,000 \]

Now, we calculate the new debt ratio: \[ \text{New Debt Ratio} = \left( \frac{\text{New Total Liabilities}}{\text{New Total Assets}} \right) \times 100 = \left( \frac{4,600,000}{6,100,000} \right) \times 100 \approx 75.41\% \]

Final Answer