sabaruch

Great Plains Grains (GPG) reported the following 2009 year-end data:
Net income $45 million
Dividends $10 million
Total long-term liabilities $100 million
Total shareholder’s equity $200 million
Effective tax rate 40 percent
Deferred Tax Assets $6 million
Funded Status Underfunded
Following the release of this data, GPG discovered that the service and interest costs related to their pension fund accounting had been miscalculated. The new estimates are $5 million and $8 million higher than the original estimates. What is the impact on the debt to equity ratio? The new debt/equity ratio is:
A 56.1%
B 61.7%
C 56.5%
The correct answer was A) 56.1%.
The increases in the service and interest costs will decrease net income by $7.8 million ((5 + 8)