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Need help with iterative Debt to Capital formula

  1. #1
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    Need help with iterative Debt to Capital formula

    I'm trying to create an algebraic formula to calculate the debt at any debt-to-cap ratio. I had a formula years ago and can't remember it. The challenge is total debt is in the numerator and denominator. See example below. This should stimulate the minds of many on this forum. Thanks for any help.

    Can't get the attachment to load. I'll re=post once I get this fixed. Sorry.
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    Last edited by AudiR8dreamer; 03-19-2015 at 05:14 PM.

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    Re: Need help with iterative Debt to Capital formula

    Assuming I understand correctly:

    DTC=A/B
    B=(C+A)
    DTC=A/(A+C)

    A is total debt, B is total capital, C is shareholder's equity. DTC and C are given (0.35 and 700 respectively). Solve for A.

    Algebra lesson:
    DTC=A/(A+C) -> first thing I would do is get the A out of the denominator. Multiply both sides by A+C
    DTC(A+C)=A -> Move A to the other side (so all A's are on the same side) and use Distributive property to get rid of parentheses
    DTC*A+DTC*C-A=0 -> Combine like terms and isolate A
    DTC*A-A=-DTC*C -> Distributive property again
    A*(DTC-1)=-DTC*C -> Isolate A
    A=(-DTC*C)/(DTC-1)

    Now, given shareholder's equity and desired DTC, you can solve for total debt.
    Quote Originally Posted by shg
    Mathematics is the native language of the natural world. Just trying to become literate.

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    Re: Need help with iterative Debt to Capital formula

    Thank you so much. This solved it.

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    Re: Need help with iterative Debt to Capital formula

    Algebra saves the day again.

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