A New Firm Is Developing Its Business Plan

question 66

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 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:

Acetylcholine

A neurotransmitter in both the central and peripheral nervous systems involved in muscle activation, memory, and learning.

Agonist

A chemical or drug that binds to receptors in the brain and causes a reaction, often mimicking the action of naturally occurring substances.

Neuron

A cell of the nervous system responsible for receiving and transmitting information through electrical and chemical signals.

Axon

A long, slender projection of a nerve cell that transmits electrical impulses away from the neuron's cell body to other neurons, muscles, or glands.