New Firm Is Developing Its Business Plan It Will Require

question 53

Multiple Choice

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 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%

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Definitions:

Decision Significance

The importance or impact that a particular decision has on an individual, group, or organization.

Situational Factors

Environmental conditions or circumstances that can influence an individual's behavior or outcomes.

Vroom-Jago Time-driven

A decision-making model that helps leaders determine the appropriate level of involvement of team members in the decision-making process, based on time constraints and importance of the decision.

Effective Leaders

Individuals who possess the skills, behaviors, and attributes necessary to influence, motivate, and enable others to contribute toward organizational success.