The records of Twain Company include the following: What is the financial leverage factor (rounded to the nearest percent)?
A)4%
B)5%
C)7%
D)9%

Question

Quizplus · Accepted Answer

To calculate the financial leverage factor, we first need to calculate the debt-to-equity ratio, which is total liabilities divided by total equity. In this case, that would be $800,000 divided by $200,000, or 4. Then, we need to calculate the financial leverage factor, which is 1 minus (1 divided by the debt-to-equity ratio). That would be 1 minus (1/4), or 0.75. To convert that to a percentage, we multiply by 100 and round to the nearest percent, which gives us 7%. Therefore, the best choice is C).

The Records of Twain Company Include the Following: What Is