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:

Infant Sucking

A reflex action in newborns and infants for feeding and comfort, involving the rhythmic drawing into the mouth and suction of liquids.

Learned Behaviors

Actions or reactions that individuals acquire through experience and interaction with the environment.

Homeostasis

Homeostasis is the process by which a living organism or cell maintains a stable internal environment despite changes in external conditions.

Staying The Same

Maintaining an unchanged state or position over a period of time.