Business, 08.10.2020 09:01 kylieweeks052704

An all-equity new firm is developing its business plan. It will require $615,000 of assets (which equals common equity), 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. The firm will use debt and common equity for financing. What is the maximum debt to capital ratio (measured as debt/total common equity) the firm can use? (Hint: Find the maximum dollars of interest, then the debt that produces that interest, and then the related debt to capital ratio.)

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An all-equity new firm is developing its business plan. It will require $615,000 of assets (which eq...

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