What is the maximum debt ratio the firm can use

Assignment Help Accounting Basics
Reference no: EM13155361

A new firm is developing its business plan. It will require $635,000 of assets, and it projects $450,000 of sales and $355,000 of operating costs for the first year. Management is reasonably sure of these numbers because of contracts with its customers and suppliers. It can borrow at a rate of 7.5%, but the bank requires it to have a TIE of at least 4.0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the maximum debt ratio the firm can use?

a) 50.87%

b) 59.34%

c) 49.87%

d) 62.34%

e) 42.89%

Reference no: EM13155361

Questions Cloud

Copyright estimation to have a remaining useful life : The copyright's value in use is $1,850,000 and the selling costs are $100,000. Assume that Venetian Corp. will continue to use this copyright in the future. As at December 31, 2010, the copyright is estimated to have a remaining useful life of 10 ..
Calculate estimate of probability that sum of dice is ten : Using your simulation results calculate an estimate of the probability that the sum of the dice is 10 and the player is dealt three cards that can be put in sequence.
Calculate the amount of heat required : Calculate the heat required to convert 24.0 g of C2Cl3F3 from a liquid at 12.00°C to a gas at 56.00°C
Break-even point-total revenue : St. Joseph hospital has overall variable costs of 30% of total revenue and fixed costs of 42 million per year. Compute the break-even point expressed in total revenue.
What is the maximum debt ratio the firm can use : It can borrow at a rate of 7.5%, but the bank requires it to have a TIE of at least 4.0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt. What is the maximum debt ratio the firm can use?
Define what is the molarity of phosphoric acid stock used : What is the Molarity of Phosphoric acid stock used to make 750 ml of dilute 4 N soludtion if 52 ml of concentrated solution was use
What are the partial pressure : The total pressure of a mixture of water vapor and helium is 0.893atm. The partial pressure of water is 27.3Torr at this temperature. For helium, what are (a) the partial pressure and (b) the mole fraction in this mixture?
Define three types of elasticity of demand : Define three types of elasticity of demand. Indicate how you would use information from recent research paid by your company that the own price elasticity of your product is -1.2 and not -0.8 as previously thought.
What will the pressure of oxygen gas be : An oxygen bottle containing a fixed volume oxygen gas has a pressure of 800.00 mm hg and a temperature of 295 k. If the bottle is heated to 328k what will the pressure of oxygen gas be within the bottle and which law will you use to solve it?

Reviews

Write a Review

Accounting Basics Questions & Answers

  What is the amount of gross profit

During the month, merchandise is sold for $23,500 cash and for $34,000 on account. The cost of merchandise sold is $41,500. What is the amount of gross profit?

  Prepare the unadjusted trial balance

Iron River Company, an electronics repair store, prepared the unadjusted trial balance at the end of its first year of operations shown below.

  Capital budgeting and cost of capital purpose

For capital budgeting and cost of capital purposes, the firm should assume that each dollar of capital is obtained in accordance with its target capital structure, which for many firms means partly as debt, partly as preferred stock, and partly co..

  Estimating recognized gain and loss

Maud exchanges a rental house at the beach with an adjusted basis of $240,000 and a fair market value of $220,000 for a rental house at the mountains with a fair market value of $190,000 and cash of $30,000. What is the recognized gain or loss?

  How does valuing an investment under the equity method

On January 10, 2012 Badger Co. purchased 30% of the outstanding stock of Crest Co. fir $123,000. Crest paid total dividend to all shareholders of $15,000 on July 15. Crest had a net loss of $25,000 for 2012.

  Problem related to leasing a copier

Jack Sawyer is presently leasing a copier from John Office Equipment Company. The lease requires 11 annual payments of $2,500 at the end of each year and provides the leaser (John) with an 8% return on its investment. You may use the following 8% ..

  Financial statement fraud

Is there a difference between financial statement fraud and other types of fraud? How does the definitions differ (if they do)? Should there be a distinction between the two or not?

  Amount of purchased differential amortization

What is the amount of purchased differential amortization included in the calculation of investment income on Schneide's book in 2005 and 2006?

  Combined reporting scheme of multistate income taxation

Explain why these states are attracted to the unitary theory and a combined reporting scheme of multistate income taxation.

  Company''s stockholders equity

Barrett Company's stockholders' equity equals one-fourth of the company's total assets. The company's liabilities are $360,000. What is the amount of the company's stockholders' equity?

  Market values and book values

Building an Income Statement, During the year, the Senbet Discount Tire Company had gross sales of $1.06 million. The firm's cost of goods sold and selling expenses were $525,000 and $215,000, respectively. Senbet alo had note payable of $800,000...

  What is net income using variable costing

Star Services, Inc., a manufacturer of telescopes, began operations on October 1 of the current year. During this time, the company produced 50,000 units and sold 35,000 units at a sales price of $500 per unit. Cost information for this year is sh..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd