A New Firm Is Developing Its Business Plan

question 39

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-to-assets 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:

U-238

U-238 denotes uranium-238, the most abundant isotope of uranium found in nature, known for its long half-life and use as a starting material in the production of nuclear fuel and atomic weapons.

U-235

An isotope of Uranium with a unique capability for nuclear reactions, particularly used in nuclear reactors and weapons.

Pu-242

A radioactive isotope of plutonium, with a half-life of over 373,000 years, significant in nuclear science and waste management.

Fission Of Uranium

A nuclear reaction in which the nucleus of a uranium atom splits into smaller parts, releasing a large amount of energy.