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    Question

    An entity has Equity Share Capital (equity

    shareholders’ funds) of ₹10,00,000, Preference Share Capital of ₹4,00,000, and Long-term Debt of ₹6,00,000. Compute the Capital Gearing Ratio.
    A 1:1 Correct Answer Incorrect Answer
    B 2:1 Correct Answer Incorrect Answer
    C 1.5:1 Correct Answer Incorrect Answer
    D 0.8:1 Correct Answer Incorrect Answer
    E 0.6:1 Correct Answer Incorrect Answer

    Solution

    Fixed cost capital = Preference share capital + Long-term debt = ₹4,00,000 + ₹6,00,000 = ₹10,00,000 Equity shareholders’ funds = ₹10,00,000 Capital gearing ratio = ₹10,00,000 ÷ ₹10,00,000 = 1:1.

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