Multiple Choice
A new firm is developing its business plan.It will require $565, 000 of assets, and it projects $452, 800 of sales and $354, 300 of operating costs for the first year.Management is quite 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-to-assets ratio the firm can use? (Hint: Find the maximum dollars of interest, then the debt that produces that interest, and then the related debt ratio.)
A) 47.33%
B) 49.82%
C) 52.45%
D) 55.21%
E) 58.11%
Correct Answer:
Verified
Correct Answer:
Verified
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