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:

Metrics

Quantifiable measures that are used to track and assess the status or performance of a project, activity, or organizational goal.

Goals and objectives

Target outcomes or achievements a person or organization aims to accomplish within a specific timeframe.

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Refers to the process of putting a designed service into operation, ensuring it meets the intended goals and needs of its users.

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Efforts aimed at strengthening the skills, competencies, and abilities of people and communities to achieve their goals and solve their problems.