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:

Human Brain

A complex organ in vertebrates responsible for processing sensory information, regulating vital functions, and enabling thought, emotion, and memory.

Nerve Cells

Specialized cells that transmit electrical signals throughout the nervous system, also known as neurons.

Neurons

Specialized neurons in the nervous system responsible for conveying information to other neurons, muscle cells, or glands.

Radioimmunoassay

A sensitive laboratory technique used to measure concentrations of substances, such as hormones, in a sample, using antibodies and radioactively labeled substances.