Saffron Industries Most Recent Balance Sheet Reports Total Assets of $42,000,000,total

question 183

Multiple Choice

Saffron Industries most recent balance sheet reports total assets of $42,000,000,total liabilities of $16,000,000 and stockholders' equity of $26,000,000.Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds.What effect,if any,would prepaying the bonds have on the company's debt-to-equity ratio?

• A)Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.
• B)Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.
• C)Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.
• D)Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.
• E)Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.

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Definitions:

Compounded 365 Times Per Year

A term used in finance to indicate that interest is calculated and added to an account's balance 365 times in one year, or daily.

Composition

The process or result of combining two or more functions by applying one function to the result of the other.

\(5x+9\)

An algebraic expression representing a linear function.

\(x-5\)

An algebraic expression representing a value five less than the variable x.