When you evaluated a firm you saw that there is 6 times more

When you evaluated a firm, you saw that there is 6 times more equity than debt. Which one of below is correct about the firm financing structure? O 85.71% debt O 16.67% equity O 83.34% equity O 85.71% equity 16.67 debt

Solution

Answer is 85.71% equity

Equity is 6 times more than debt

Let debt be x and equity be 6x

Debt + Equity = 100%
x + 6x = 100%
7x = 100%
x = 14.29%

Debt = 14.29%

Equity = 100% - 14.29%
Equity = 85.71%

So, firm is financed by 85.71% equity and 14.29% debt.