Monroe Company Has Total Assets, Liabilities, and Shareholders' Equity of $30,000

question 28

Essay

Monroe Company has total assets, liabilities, and shareholders' equity of $30,000, $23,000, and $7,000, respectively. Assume no material change occurred during the year to totals on the balance sheet. What amount of long-term debt must Monroe exchange for new shares of common stock issued in order to decrease its debt/equity ratio to 1.0?

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Definitions:

Risky Assets

Assets that carry a significant degree of risk of loss, often associated with higher potential returns as compensation for the risk taken.

Market Risk Premium

The extra return over the risk-free rate that investors require to compensate them for the risk of investing in the stock market.

Risky Investment

An investment that carries a high level of risk of loss, along with the potential for significant returns.

Risk-free Investment

An investment which is thought to have no risk of financial loss, though in reality, such an investment is virtually nonexistent.