The liabilities and stockholders' equity for Campbell Industries are as follows:
Accounts payable .............................................. $ 500,000
Notes payable ................................................... 250,000
Total current liabilities ........................................ $ 750,000
Long-term debt ................................................ $1,200,000
Total common stockholders' equity ......................... $5,000,000
Total liabilities and stockholders' equity .................... $6,950,000
a. What fraction of the firm's assets does the firm finance using debt (liabilities)?
b. If Campbell were to purchase a new warehouse for $1 million and finance it all using long-term debt, what would happen to the firm's debt ratio?