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A company has Total Debt ₹40 lakh and Shareholders' Equity ₹20 lakh. Debt-to-Equity Ratio is:
A0.5
B2
C1
D3
Answer & Solution
Correct answer: B. 2
1. D/E = Total Debt / Shareholders' Equity = 40 / 20 = 2.
2. A high D/E indicates greater financial leverage.
3. Lenders may view this as risky.
_Source: ICAI BoS CA Inter Paper 6A, Ch 3 "Financial Analysis and Planning — Ratio Analysis", §3.2.1(c)_