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:

Hesitancy

A delay or pause before initiating an action or speech, often due to uncertainty or anxiety.

Urgency

A sudden, compelling need to urinate, which is difficult to delay, often a symptom of a urinary tract condition.

Orchitis

Inflammation of one or both testicles, often caused by infections or viruses such as the mumps virus.

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An abnormal enlargement of the scrotal sac, which may indicate various conditions, such as hydrocele, epididymitis, or inguinal hernia.