Calculate the effect of a 100-basis-point increase in health care inflation on debt- to-equity ratio.
Sensitivity of Accumulated Post-Employment Benefit Obligations to Changes in Assumed Health Care Inflation (in $ millions)
Item 100-bp Increase 100-bp Decrease
Benefit obligation change $93 –$76
Benefit expense change $12 –$10
Total liabilities 17,560
Total equity 6,570
Q:- Based on the assumption about future health care inflation, calculate the debt-to-equity ratio.
A. 2.69.
B. 2.71.
C. 2.73
Can someone calculate and explain this.
Thank you
Answered earlier. Please look up.
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Hi,
The answer of this question should be Option C. We’ll add $93 in Total Liabilities & we’ll deduct $93 from Equity not $12 because although the effect of $12 will come in P/L but also the remaining will affect OCI in Equity. And in total Equity will be reduced by $93. Since no other current liability is given, we’ll take the whole total liabilities as debt in debt to equity ratio.
Therefore, Debt to Equity Ratio = (17,560 + 93)/ (6570 – 93)
= 2.73 – Option C
Hope this helps!
Thanks a lot!