What is the maximum debt ratio the firm can use


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%

Request for Solution File

Ask an Expert for Answer!!
Accounting Basics: What is the maximum debt ratio the firm can use
Reference No:- TGS083893

Expected delivery within 24 Hours